Businesses are rarely successful immediately and often come with stress for entrepreneurs; irregular work hours, lack of operating capital, employee issues, balancing work and family life, etc.
In the early stages of business, stress can wear entrepreneurs down if they don’t take care of themselves physically and emotionally. Ironically, sometimes when success finally happens, it can become a recipe for disaster when it comes to financial planning for the business and the entrepreneur. Strategic financial planning can help entrepreneurs plan for different milestones in their business – hiring employees, partnering with others, adding revenue sources, building a management team, and ultimately succession planning if the entrepreneur sells or passes. Family dynamics, mortality, and money from the business can create unique challenges. Here are things to consider if you are an entrepreneur:
Will the business transfer to family members, key employees, or be sold if the owner dies? Will the profits from the business liquidating provide enough money to pay back lenders? A solution for the premature death of the owner is a life insurance policy that pays the death benefit to the business entity or lender to ensure the business’ debts are paid. Life insurance is a must for entrepreneurs.
If you are fortunate enough to sell your business, your sale proceeds may pay out over multiple years. No longer will you offset income with business deductions, and your income may increase, resulting in a higher personal income tax bracket. Entrepreneurs may want to consider reducing your income in the early years of your business by contributing to a pre-tax retirement savings vehicle or an annuity that you fund over time. In addition, work with your business tax professional to determine a tax-savings strategy that makes sense for your situation.
Because there are many types of business succession plans, yours should reflect what is best for YOU. Business succession planning should involve legal and tax professionals and financial professionals. The best time to plan how you want your business to continue after your exit is before the event occurs.
If your business has one or more owners, you might consider establishing an agreement that upon the death of any owner, their interest is automatically purchased by the other owner(s). Known as a buy-sell agreement, this arrangement can ensure that beneficiaries of the deceased owner (including spouses or other family members) don’t unintentionally become owners. Life insurance can help cover the financial obligations of buy-sell agreements and provide necessary liquidity.
Given the complexity of business law, a legal professional that specializes in corporate law can assist you with these business legal documents:
As entrepreneurs, you must plan for your situation and business and work with financial, legal, and tax professionals. Contact our office if you have any questions regarding life insurance for your business. Or personal coverage or saving for retirement.
The sources used to prepare this material are believed to be true, accurate and reliable, but are not guaranteed. This information is provided as general information and is not intended to be specific financial or tax guidance. When you access a link you are leaving our website and assume total responsibility for your use of the website you are linking to. We make no representation as to the completeness or accuracy of information provided at this website. Nor is the company liable for any direct or indirect technical or system issues or any consequences arising out of your access to or your use of third-party technologies, websites, information and programs made available through this website.
Fixed Index Annuities are designed to meet long-term needs for retirement income, and they provide guarantees against the loss of principal and credited interest, and offer the reassurance of a death benefit for your beneficiaries
For those who are looking for financial advice, we realize the available options are many and deciding who to work with is a challenging problem. At Sterling Oak Wealth Management, we know that it is your retirement, and you should have control over it. We offer our experience and knowledge to help you design a custom strategy for financial independence. Contact us today to schedule an introductory meeting!