For a small business owner, one of the hardest questions to answer is also one of the most obvious strategic planning issues, namely:
How could your business operate successfully without your continued talent and hard work?
Many women entrepreneurs have built their businesses virtually from scratch, perhaps on a shoestring, and they still “wear many hats” in day-to-day operation. So, their first response to this question may be a knee-jerk “no way!” Behind this answer may be skepticism that anyone else could (or would want to) perform all of the tasks required to keep the business afloat, let alone successful and growing.
Yet, many successful women business owners have found a way to answer this question positively based on three factors: confidence, knowledge and planning.
o They develop confidence that the business is strong enough to weather an illness, disability or even the demise of its owner.
o They acquire knowledge about techniques that can protect the business and also the financial security of the owner and her family.
o They pursue planning that put these techniques into action with the help of a qualified financial professional.
This article summarizes essential ideas you can discuss with your financial professional for protecting your business, even if you personally could not make an active contribution due to a unforeseen or planned event.
Idea #1: Consider your “continuity options.” There are two basic ways that a small business can carry on without an active owner: 1) continue operation under a successor owner/manager; or 2) sell the business to an acquirer. To have the first option, an owner must identify a person capable of becoming a successor, perhaps after some seasoning. The second option becomes viable when the owner focuses on creating value that is recognized by the market and does not depend on her own contributions.
Idea #2: Appraise business value. Most continuity strategies require a realistic appraisal of what the business would be worth in an arm’s-length sale – “fair market value.” This value then becomes the basis for creating agreements to transfer ownership (in full or part) to a successor or acquirer. The process also can help the owner set goals for gradually increasing value over time. Objective business valuation experts can be hired at fees that range from modest to expensive, depending on business size and complexity.
Idea #3: Create a written business plan with a succession component. This plan should document the businesses’ ownership, assets, procedures, products, customers and key employees. Written documentation can greatly assist a successor or acquirer in understanding the business and managing it effectively. One section of the plan can address the owner’s “exit strategy” desires and options.
Idea #4: Develop a buy-sell agreement. This is a legal agreement between a current owner and one or more partners, designated successors, or potential acquirers. It specifies events that could trigger a transfer of business ownership and the price or terms at which the business will be transferred. The agreement should be drafted by a competent attorney who specializes in business continuity planning.
Idea #5: Provide funding for the agreement. Life insurance is commonly used to provide the buy-out funding specified in the buy-sell agreement. Also, a special type of disability income insurance can be used to produce a stream of buy-out income if the owner becomes disabled. Several types of retirement plans can build assets that will give owners the financial flexibility to retire from the business at a future date.
Idea #6: Step back and consider why you are working so hard. In the day-to-day flurry of business activity, it can be hard for small business owners to gain perspective on personal long-term goals. But ultimately, don’t you want to stop taking care of your business -- and have it take care of you?
By discussing these ideas soon with your financial professional, you will answer that question affirmatively and protect the future continuity and value of your business.
John “Jake” Akoury, MBA, CLTC, AAMS, and John G. Balzer, JD, CLTC, RFC, are Registered Representatives of Park Avenue Securities LLC (PAS), 140 Kendrick Street, Needham, MA , 02494. Securities products and services offered through PAS. Financial Representative, The Guardian Life Insurance Company of America (Guardian), New York, NY. PAS is an indirect, wholly owned subsidiary of Guardian. The Bulfinch Group is not an affiliate or subsidiary of PAS or Guardian. Life insurance offered through The Bulfinch Group Insurance Agency, LLC, an affiliate of The Bulfinch Group, LLC. The Bulfinch Group, LLC, is not licensed to sell insurance. PAS and the representative do not provide legal advice or services.
The Bulfinch Group
781-876-5880 x222 / x224
JAkoury@bulfinchgroup.com
JGBalzer@bulfinchgroup.com
PAS is a member of FINRA, SIPC.
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