Your Next Essential Business Plan

Every successful business owner understands the value of planning. In fact, creating a well-crafted business plan is one of the first challenges most new entrepreneurs face. Yet many business owners become so embroiled in the day-to-day running of their companies that they fall short in crafting another, equally essential plan  a wealth management strategy that integrates personal and business planning.

While you continue to grow your company and build your personal worth, the financial issues and challenges you face become increasingly complex. That’s why it’s important to work with a team of specialists that can help you put all the pieces together to establish a plan that meets your specific needs.

Planning to Retire?

Wealth management professionals look at these issues and recommend viable solutions to help manage, protect and distribute your assets. For example, some entrepreneurs may not integrate their retirement with their other investment planning. They may invest using their company’s 401(k) plan and also invest excess personal income separately. This can result in possible inefficiencies or risk because of duplication and overlap in their equity portfolios.

Many entrepreneurs, on the other hand, may set up 401(k) plans for themselves and their employees, then let them ride, ignoring the plans for years. In the meantime, the retirement strategies may become outdated. An investment management professional can help to develop an appropriate investment strategy, mitigate risk through unified asset allocation and diversification, and rebalance the portfolios on a regular basis.

Stock options may comprise a substantial portion of your income, and careful management of these options is vital. Having an integrated plan may help you balance your investments and navigate complex regulatory and tax issues that may arise when exercising these options.

Succession Planning

It’s also essential to review and update your financial plans with a business succession planning professional each year. For example, small business owners may have outdated succession plans in place. A buy/sell agreement may have been established years ago, funded with life insurance that would allow the succeeding partner to buy out the other’s interest in the company. These plans often aren’t updated. If the value of the company rises greatly and one partner dies, the insurance may not be sufficient to fund the sale of the company to the surviving partner – often resulting in part or all of the company being sold.

Business owners also should plan for the unexpected. For example, the owner is the most important asset of many small companies, so it is important for the owner to be prepared by including disability planning and insurance in his/her wealth management strategy.

Planning also can ease transition and business succession  especially important for business owners since, quite often, the company is the largest single component of the owner’s family wealth. Some business succession plans, for example, involve establishing and transferring ownership of a company to a trust. This can help with an orderly and cost-effective transition.

Taxes, Taxes, Taxes

Tax laws have changed dramatically in the last five to 10 years, so it’s vital to work with the appropriate tax professional to keep current on new laws and options. New laws may provide some business owners an exclusion from taxation for personal retirement investments that might previously have been taxed  particularly if the owner is considerably older than the average rank and file employees.

Further, there may be other types of plans that provide owners better benefits than a 401(k). Tax professionals may also help you develop strategies to lower your liability  e.g. by shifting tax burdens to family members in lower brackets. This is especially important when it’s time to move on.

Most business owners at some point may expect to sell their companies or transfer ownership to their family. Yet they may tend to focus on growing the business without paying attention to how they’ll get out of it one day, only to then wake up 10 or 20 years later and say, “I’m tired of this – I want to do something else,” or “I want to retire.”

That’s when the reality of high taxes may hit in full force. Integrated planning could have potentially helped reduced their tax burden.

A wealth management professional can help you identify the financial planning issues that are most important to business owners and their families, and then bring together a team of investment and business succession planning specialists who can help clarify your total financial picture and leverage your assets more efficiently while working with your tax professional to potentially help achieve maximum tax advantages for you and your family.

Disclaimer: Wells Fargo Private Bank provides products and services through Wells Fargo Bank, N.A. and its various affiliates and subsidiaries. Wells Fargo does not provide tax or legal advice. Please consult your professional tax and legal advisors to determine how this information may apply to your own situation. Asset allocation and diversification do not assure or guarantee better performance and cannot eliminate the risk of investment losses.