2. YOU’VE INVESTED A LOT IN YOUR BUSINESS Time Money Passion Your Business
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10. IF SOMETHING HAPPENS TO YOU, DO YOU WANT TO LEAVE YOUR FUTURE AND YOUR BUSINESS’ FUTURE TO CHANCE?
11. SUPPOSE YOU WANT TO (OR HAVE TO) RETIRE. Do you want to be able to create additional resources by selling your interest in the business?
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Editor's Notes
Over the years you’ve built a profitable business. Year after year you’ve invested your time, your money and your passion. It hasn’t been easy, but with a lot of hard work and a bit of luck you’ve made your business what it is today.
If you are like most business owners, you manage your business on two levels. The first level involves the day-to-day decisions you make in operating your business. These are the decisions that get your doors open, attract customers, make sales and minimize costs.
The second level, Level Two, involves strategic planning decisions. These are the decisions that set your business’ long-term direction and focus. Strategic decisions determine things like who your target customers are, where you should locate, what legal form or structure your business should take, how much of your profits to re-invest, etc. Strategic planning decisions also address the problems and opportunities your business may encounter in the future.
Balancing these two levels can be difficult. Running a business can be a non-stop affair. You may not have much time to catch your breath. You probably spend much of your time in Level One decisions. You have to deal with a steady stream of problems and emergencies that impact daily business operations. You have to deal with the urgent things first. As a result, some things that are important but which may not be urgent can get pushed aside. Often these are the Level Two strategic and planning decisions; they have a big impact on your business’ future. As hard as it may be to find the time to keep up with your strategic planning, you should make the effort. This is true for two reasons: (1) your business is probably an extremely valuable asset and strategic planning is an important part of protecting it. (2) good strategic planning can be financially rewarding. That’s because your business can help you increase your personal net worth.
I don’t know a great deal about your business, so I may not be able to help much with the day-to-day decisions you have to make in Level One. However, I can be a big help to you with some of your Level Two strategic planning decisions. I have a lot of experience in this area and my experience can assist you in protecting your business’ value and in using business dollars to legitimately build your personal non-business net worth. Let’s focus on protecting your business’ value first.
A successful business is like the goose in “Jack and the Beanstalk”—the one that laid the golden eggs. Something that produces golden eggs is valuable and needs to be protected. You protect it so that golden eggs can keep on coming. Your business interest is probably your most valuable asset. It produces “golden eggs” that give you financial security and flexibility. A decrease in your business’ value could have a big impact on your life. You need to protect its value because your financial future and that of your family and your employees may depend on it.
Protecting your business is a four-stage process. You start by determining how much your business is worth. This is important, because if you don’t know how much it’s worth, you don’t know how much you have to lose. Second, you need to identify the possible events that could harm your business. These are the potential things that could happen in the future that could reduce its value and earning power. Once you know what could harm your business, you can begin to develop contingency plans to prevent or minimize the possible damage. As you develop your contingency plans, you need to make sure your plans are backed up by money. It’s important to decide where the funds will come from to implement your contingency plans because a plan without money can be worse than no plan at all.
Of course your contingency planning will consider normal business calamities. Things like fires, floods, computer breakdowns, and product malfunctions. In addition to normal business disasters, you should also consider planning for some other unexpected events, events that you might prefer not to think about. You should develop contingency plans for the unexpected death of an owner, whether it be yourself or another owner. You should have a plan in place if you or another owner suffers a permanent long-term disability. You also need to consider disasters that could involve some of your key employees. You should have a contingency plan that deals with the possibility of a key employee’s disability or even their death. Finally, it is possible that a key employee could become dissatisfied and leave you to go to work for a competitor or leave to start their own business. No one wants events like these to happen, but sometimes they do. And when they happen, the consequences can be severe. You need to have plans in place to deal with these possibilities. Your best defense is to plan for them in advance.
If something happens to you, whether it be an unexpected death or disability, do you want to leave your future and your business’ future to chance?
Suppose there comes a time when you want to or have to retire. Do you want to be able to create additional resources by selling your interest in the business?
Your knowledge and expertise are very important to your business’ profitability. But there may also be other key people in your organization who make a big contribution. You probably have a number of special employees whose experience and sill are critical to long-term profitability. In fact, your own future economic security may depend on their commitment to stay with the business and perform at a high level. Your retirement lifestyle may depend on their future loyalty and performance. The unexpected loss of even one of them could create a ripple effect that could reduce your business’ value and profits for years. Key employees are among the most valuable assets your business has. Your key employees aren’t listed on your balance sheet or your income statement, but what they do shows up there.
Smart business owners carefully manage their key employees. The best ones use a five-step process to get the most out of them: They review all their employees and identify the ones who add the most value to the business They quantify the dollar value these key employees bring to the business They get to know their key employees so they have a good grasp of their individual wants and needs They customize individual incentive packages for each key employee; these packages are designed to fit each key employee’s individual wants and needs to maximize their motivational power, Finally, they fund these incentive packages so the business can recover the costs it incurs in offering them. That way they make financial sense for the business. Well designed incentive plans can actually motivate key employees to produce the extra revenues needed to pay for their incentive packages.
Many businesses use incentive plans to keep their key employees happy and productive. A well-designed incentive plan does four things: It formally recognizes each key employee’s contributions to the business’ success. It creates real rewards for superior performance It increases those rewards the longer the key employee stays loyal and continues to produce It is designed to recover some or all of the costs of providing the incentives
A variety of different incentives can be customized to motivate individual key employees. Some of the commonly used incentives are: Section 162 Bonus Plans Restricted Bonus Plans (also known as REBAs) SERPS (Supplemental Exec. Retirement Plans Endorsement Split Dollar Plans SERP / Split Dollar Combination Plans Split Dollar Loan Arrangements
I can help you protect the business you built. I can help you get the most for the time, money and emotion you’ve put into your business. Specifically, I can help you in four ways: Review alternatives for estimating its current value Test your contingency plans to make sure they work Analyze different funding alternatives for your plans Assist you in keeping your plan up-to-date
Remember, wise business owners hope for the best, but they plan for the worst. If something happens, they are prepared. Where would you like to start? Would you like me to review your current business protection plans or would you like to protect against the loss of your valuable key employees?
Introduction for the opening slide Good afternoon/evening. Thank you for coming to my presentation on business protection planning. This type of planning is very important to business owners and their families. When the session is over, I’m confident you’ll feel your time was well spent. My name is___________. My background is _______________. Moving to the Disclosure slide At the outset I’d like to make a couple of things clear. First, neither ING nor its affiliated companies and representatives (including myself) give tax or legal advice. You should always consult with your tax and legal advisors for advice regarding your individual situation. Second, the materials used in this presentation are not intended to avoid tax penalties and were prepared to support the promotion and marketing of the concepts that will be discussed. If you need tax advice, I suggest you consult with an independent tax advisor.
