Kansas & Missouri Estate Planning

Small Business Owner Retirement Perspectives

Small business owners, by and large, have a hard time thinking beyond their business. It is a significant part of their very lives. If you are a small business owner, now may be the time to start thinking of your business as its own retirement vehicle, at least according to a recent guest columnist over at Forbes.

For retirement planning, a business owner typically has to take out of the business what would otherwise be capital for growth. You're taking it out to put into a tax advantaged plan like a 401k, hoping it will grow there enough to make up for the taxes to be paid later. In addition, you are doing so in the belief that you'll be in a lower tax bracket when you call upon those funds later on.

But what are the returns on that account?

It may be that a properly capitalized company will give far greater returns.

According to the Forbes article, a small business owner has to exist in a couple capacities, and the self that is an "individual" cannot be eclipsed by the self that is the "business owner," nor the other way around. Ideally, perhaps, they can work in a synergy.

It is a risky strategy, especially for those nearing retirement, but it may be worth looking into the original article's numbers.

Reference: Forbes (January 25, 2012) "Fund Your Business Before You Stuff  Retirement Accounts"

Small Business “Smoke And Mirrors”?

There's a lot of movement on Capitol Hill these days, or at least there is the potential for it, and it’s largely in the name of small business.

The government's top official charged with advocating for small business is now a member of the White House cabinet, President Obama announced. With this appointment, he expanded his cabinet with the addition of the chief of the Small Business Administration (SBA). 

Is it going to work for you?

As reported here in Businessweek, and in many places beyond, President Obama has launched an initiative to reorganize and condense six of the agencies responsible for various segments of the economy, not least of which being the SBA.

There is still concern that it may end up being a largely symbolic gesture, and perhaps also only a pre-election "political move."

So, how will it affect you?

According to Robb Mandelbaum at the New York Times, the reaction is mixed amongst small business persons.

Time will tell, but how much time does our economy have?

Reference: Bloomberg Businessweek (January 13, 2012) "Obama Makes SBA Chief a Cabinet Member"

Business Exit Planning – Begin With The End In Mind

If you are a small business owner, then you know planning for your finances and your estate is not that simple. In fact, you and your business need to plan together, and that means succession or exit planning.

For added incentive and another horror story on the subject, take a look at a recent article on the Wealth Counsel blog. It's the story of three businessmen that proves both the necessity for planning and the necessity of understanding the plan.

These three businessmen were at the head of a once-prosperous construction company and even had the proper forethought to set out an agreement ahead of time. Of course, the economic meltdown hit the construction market fairly hard and that company turned south fast. As a result, the three put their own funds into the company by way of personal loans just to keep it afloat.

One of the partners then contracted and succumbed to a terminal disease. In turn, this prompted the question of how his life-insurance funds ought to be distributed and the role of his stake in the company. Naturally, the surviving spouse thought she was to be compensated for her husband’s interest in the company. On the other side of the table, however, the surviving partners thought the business was owed some of the life insurance money (to help pay off their personal loans to the company).

It was, essentially, a mess.

Thankfully, on the basis of the existing plan – even if it wasn't as comprehensive as it ought to have been – the parties were able to come to a compromise.

Teaching point? It goes to show that even a little planning is better than no planning. Otherwise, the case may have become fodder for protracted litigation and huge legal fees. Still, it is essential that all parties understand the plan and work to effect it in the spirit intended.

 Reference: Wealth Counsel (December 28, 2011) "Creating an Exit or Succession Plan for Your Business"

Selling Your Family Business... With The Tax Wind At Your Back

Whether we're coming out of the recession is still very much in debate. Nevertheless, at least for some small businesses, the balance sheets are starting to look a bit better.

Having weathered the storm, some business owners are now ready to get out. According to a recent New York Times article, 2012 is going to be the time to sell the business for some owners.

"Buy low, sell high" is conventional market wisdom. To some business owners coming out of the rut with a good year behind them, right now may be the “high sales” they’ve been awaiting. Yet for some investors right now may still be the “low buys” with an eye for growth.

Behind the scenes, however, there’s more than simple market dynamics afoot in 2012. As you may recall, it also is the last year of the Bush-era tax cuts as they were extended only until the end of 2012.

So, if you're looking to sell the business, then 2012 will offer a lower capital gains tax rate, at 15% instead of the 20% slated to fall into place come next January.

If your business IS your personal wealth, then this is real money for your future and for your family’s future.

Why are you waiting? Unless you intend to keep you family business in the family, the tax planets are beautifully (albeit temporarily) aligned with those same Bush-era tax cuts in place – and the generous Gift and Estate tax levels.

Accordingly, I recommend a consultation with your trusted accounting, legal and financial advisors without delay.

Reference: The New York Times (December 21, 2011) "Why Some Business Owners Think Now Is The Time To Sell"

Surprise: “Family” Is Key To Family Business Success

Legacy companies – those incredible companies that have lasted for generations within a family, some 100 to 150 years, and continue to grow – occupy a special place in the American imagination and even more so in the hearts of entrepreneurs.

In fact, for most thinking people, there is a special appreciation for the care and planning necessary to start a company and keep it going for a short time, never mind for entire generations. In Kansas City, one of these success stories is the Hall family of Hallmark Cards, Inc.

Indeed, Legacy companies are a rare breed. Many family companies will simply never get there. Fortunately, there is heartening news in a recent study that suggests that the duration of a family company is not quite so important, for all its branding glory, as the duration of the family itself.

As related in Family Business Magazine, the Family Firm Institute – a global association of researchers and advisers – has conducted a three year study: the "FFI/Goodman Longevity Study," completed in 2010. By surveying some 500 senior family-firm executives they discovered that just 10.6 percent of family enterprises owned just one business. The average is actually closer to 3.4 businesses, with 21.3  percent controlling five or more businesses, and an average of 6.1 companies over a family history. What does all of this mean?

Simply put, single companies are not the measure of enterprise, especially not in a family. The family itself is the asset and the drive that moves matters forward across time, generations, and changing markets.

As you plan for your business - and for your family - this may be an essential thought to bear in mind, and one to foster in others. As noted in the original article:

"Families with a transgenerational orientation view the legacy company broadly rather than narrowly. Though they lovingly tell their children tales of the original business model and the town where it first took root, those aspects are just part of the family story. They place their emphasis on the founder’s entrepreneurial spirit, attention to the marketplace, flexibility and sense of stewardship. This perspective raises the odds that the family will prosper as an economic unit over many generations, no matter what form its wealth-creating entities take."

 Reference: Family Business (November 2011) "Family Business Longevity Examined in a New Light"

LLC Planning For Your Business And Family

When it comes to understanding your estate and planning for it, the key concept is ownership.

How do you own your assets? How should you own your assets? How can you easily pass along this ownership to your loved ones?

When it comes to business assets, whether in the context of ordinary day-to-day operations or as a business owner setting up your estate plan, ownership is still the name of the game. One question that arises, then, is whether your assets should be spread across separate or multiple LLCs.

I came across a recent article in CPA Magazine and, according to the author, whether you should start splintering your assets into multiple LLC depends a great deal on what you hope to accomplish. No surprise there.

However, to many it's simply a question of liability and risk protection, but then there are other goals. Namely, splitting into multiple business entities will allow your company to move the ownership of assets around between family members or employees without necessarily dividing the business.

This can be accomplished with some careful planning, corporate due diligence, and transactions like the sale-leaseback or, more in the vein of estate planning, the gift-leaseback. In that latter play, the business owner either leases or gifts the asset away and then immediately leases it back, thereby spreading ownership but retaining the operations of the company. Of course, not all business assets are well equipped for this practice, but others are perfectly positioned, especially those that deal in large equipment or vehicles.

It's not quite as simple in practice, and diligence is a necessity, but for many small and family owned businesses this fractured structure will allow a great deal of leeway.

Whether it truly is right for you will take some thought and competent counsel at your side. In the end, it all comes done to your own unique goals, first for your business and second for your family.

Reference: CPA Magazine (2011) "How to Determine if a Separate LLC is Right for Your Assets"

Employee Retirement Plans - Easier Than You Think?

It's the last week of the year. If your small business doesn't have an employee retirement plan already in place, then likely you're thinking about it.

Chances also are pretty good that you think it's more difficult, and more expensive, to get started than it really is. Welcome to the fresh air of employee retirement plan reality.

Business owners should rethink what they "know" about sponsoring retirement plans.

Bloomberg Businessweek ran an article earlier this month outlining some of the options, with hopeful advice. Nearly three-quarters of small employers do not sponsor retirement plans for their employees, perhaps because of outdated negative notions about their costs and complexity.

If you are a small business owner, now may be the right time to revisit the concept of employee retirement plans. The options may be more attractive than you think.

Reference: Bloomberg Businessweek (December 6, 2011) "Establishing an Employee Retirement Plan"

Business Succession Planning Priorities

When someone starts talking about "business planning," too often they just mean getting it off the ground or, if they have high aspirations, how to make it fly once airborne. Of course, "business planning" also is about keeping the business aloft through turbulence (e.g., bad markets) and even should the pilot-in-command become unable to fly (e.g., retirement, incapacity, or death).

In the end, a proper business plan for any small business, but especially for a family business, always entails some form of succession planning.

I just ran across and Forbes article that ran a few months ago, yet is forever timely on this subject. This article illustrates just how important coordinated succession planning and estate planning are in the context of a family-owned business.

If you run such a businesses, whether it's a small shop or a large company, oftentimes your personal wealth and the wealth of the family is tied up with the business itself and your ability to keep running it. [Not to mentioned an lines of credit your signature and personal assets may secure.] What happens when you fall ill or pass away?

"That day" is not always a day you can see coming or you can delay.

The biggest hurdle to any succession plan is planning for your own succssor. Let's face it, running a business is tough and jumping on board while the carousel is moving can be a dicey proposition.

While the Forbes article has some specific advice, undoubtedly it will take measured thought and time to form and implement an effective succession plan. Then again, there also must be the contingency of deciding simply to sell the business. Either way, whether you ultimately continue the business or sell it, careful planning is a must.

In many ways, it's not just for your own sake or for the sake of your family that the business has to be protected with proper planning. A business means employment for many people and often wealth for a community. It's timely news, then, to find that small businesses created 55,000 new jobs this past November.

Oh, if no one has thanked you lately for being a business owner and that means, then let me say "thank you."

Reference: Forbes (October 12, 2011) "Identifying a Successor for Your Family-Owned Business"

Risk Management: Unique Assets Require Unique Planning

Not so fast: With unique assets, things aren't always straightforward. More specifically, owners of unique assets - such as family businesses, legacy real estate and valuable art, coin and other collections - need to consider specialized risk management.

Unique assets call for comprehensive planning; whether legacy real estate or a valuable collection, but this is especially true if the asset is a business. When you own a small business, and especially if you and your family are the sole owners of a not-so-small business, it's important to remember that personal planning and financial planning are not separate activities.

Financial Planning magazine recently ran a piece on this very issue and I thought it was worth passing along. According to the author, you likely practice some form of risk management in your business. In fact, you probably know all too well that things don't always go along as planned. And, when Murphy's Law strikes, there's a great deal at stake. An even greater source of risk is personal when your business life, personal and family lives are one and the same. In short, you need a risk management plan for your business, yourself and your family in the form of comprehensive estate and succession planning.

The original article has much more to say on this important subject and includes some stories that ring all too familiar.

Reference: Financial Planning (October 1, 2011) "To Collect and Protect"

New Credit Card Paperwork For Business Owners

Whether you make every deal for your business with a handshake or you fastidiously create, execute, and file away every bit of paperwork, you probably don't like paperwork. And, you're not alone. Brace yourself for even more paperwork coming down the pike from our friends at the IRS.

Yep, you read that right. A new IRS rule may involve even more paperwork for you, if your business gets paid by credit cards.

As the Wall Street Journal reports, this year credit-card companies are required to track the dollar amounts that individual merchants get from credit card transactions. In turn, the credit card companies then report this information to both the IRS and the merchant on 1099-k forms. The IRS made the rule so it's prepared, but is your business prepared?

If you've been reporting your income properly all along, the you have little to fear. However, it does mean a good amount of extra work, if you want to be sure that the credit-card company is correct. This means an entirely new accounting protocol for which many firms are simply unprepared… and are likely unaware they're about to face.

According to Melissa Labant, technical manager at the American Institute of CPAs, the new law "creates an administrative burden to separately account for different transactions—and to break it down month by month if they want to reconcile to the 1099-Ks they receive."

Reference: The Wall Street Journal (November 14, 2011) "New IRS Rule Creates (What A Shock!) More Paperwork"