A Check-Up for Business Owners
Personal Financial Security Considerations You Can’t Overlook
By Steven Audino
For those who own their own business it’s no secret that personal financial security is very closely tied to the success of the business. And with the never-ending task of overseeing day-to-day operations, owners may find it difficult to focus on broader financial issues associated with running a business. Following is a brief checklist of some of the most important items business owners should consider, along with an explanation of how each fits into the big picture.
Qualified Retirement Plan
To help you with the all-important
task of planning for retirement – both for yourself and for your employees – a qualified retirement plan allows you to build a portion of your wealth independently from your business. For you personally, such a plan offers several advantages, e.g. you can reduce your personal taxes by contributing to a retirement plan. In addition, these plans allow for tax-deferred growth on your plan investments that may provide a significant amount for your retirement.
Aside from the personal benefits, you may also be eligible to receive a business tax deduction for a) the cost to establish and maintain the plan and b) for the contributions you (the employer) add to your employees’ accounts. A good retirement plan will also help attract, reward and retain good employees, which could prove to be a competitive advantage for your business.
While a qualified retirement plan can be a good start to building wealth for retirement, it may not address all your needs and objectives. In some cases, you may need to provide additional options for the owners or other highly compensated individuals within your business. Though they only apply in limited circumstances, nonqualified deferred compensation plans allow you to address these unique needs through several options. Some plans let executives defer a portion of their compensation, while others let employers provide tax-deferred compensation to this select group. There are also excess deferral plans for highly compensated individuals who may be subject to contribution limits with qualified plans.
Beyond the salary and deferral issues, there are several other elements that make up total compensation. You may want to provide life insurance as an employee benefit. Group term life insurance, individual and group disability insurance and individual and group long-term care insurance are additional benefits that could be offered for employees. In addition, you might consider other benefits such as college savings plans, which can help employees save money to send their children to school.
In business, you face many risks you cannot control. In that light, it only makes sense to try to reduce the effects of those risks to the greatest extent possible. Remember, one of the most valuable assets of the business is you. For this reason, you should make sure to have adequate life and disability insurance for yourself, in order to provide financial security for both you and your family.
If the owner of a business or a key employee dies unexpectedly, the business could suffer as a result. Key-person insurance can provide cash to help your business continue operating in difficult times, and it may surprise you how affordable it is to effectively reduce a serious risk to your business.
While these are just a few of the major concerns business owners face, you may want to take time to consider the many options available to help you address these issues. A financial advisor can be one key member of your team to help put your finances in order so that you can spend your time doing what’s most important — building your business.
Steven Audino is with Wells Fargo Advisors, LLC in Melbourne. He can be reached at (321) 409-4425.