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The business owner who is managing a successful, growing business usually has little time to attend to his or her own financial planning. To the extent one has done financial planning, it has usually been on a piecemeal basis—getting input from their CPA at one time, attorney at another, investment adviser at another, and insurance adviser at yet another. What the owner needs is someone with the expertise, experience, time, and perspective to coordinate his or her personal and business planning.

The starting point in putting together a comprehensive plan is to start out with your current advisors. Most business owners have a CPA, attorney, and maybe a financial advisor. They also may have an insurance agent who might handle their life insurance, and another one that handles their property casualty needs. Very rarely do each of these advisors know each other, much less consult with one another regarding the business owner's financial plan.

In order to organize, the business owner should put a chart together to list which of their trusted advisors handles the following areas:

  • Investment Plan - Personal Investments financial advisor
  • Tax Planning - Personal & Business
    • Estate Taxes
    • Corporate Taxes
    • Personal Taxes
  • Business Planning
    • Succession Plan
    • Buy/Sell
    • Corporate Structure
  • Executive Benefits Planning
  • Insurance Planning

Most business owners who complete a list like this will find that there are some areas that are being ignored or are not adequately addressed. In either case, you have to ask yourself "Do I have the right advisors?" as well as "Do I need to reach out to fill out the gaps?"

Objective of Each Planning Areas

Investment Plan

The primary objective of an investment plan is to increase your net worth through the investment of your liquid assets. A comprehensive plan needs to take into account your cash flow needs, risk profile and time horizon. The tax environment will also impact the success of any investment plan.

Tax Planning

The primary objective of tax planning is the optimization of your net worth by reducing or minimizing your tax liability. Good tax planning not only looks at this year's tax return, but also considers future tax rates as well. Too often business owners look purely at saving a tax dollar today without looking at the impact on the taxes due at a later date.

Estate Taxes - Although most CPAs will address your corporate and personal taxes, they typically are not focused on estate taxes. It is better to seek out the advice of an advisor who specializes in estate taxes, preferably someone who is Board Certified in Estate Planning and Probate.

Business Planning

Business planning encompasses planning for the successful continuity of the business in the event of retirement, death or disability of the owners or senior executives. This may entail arranging for the sale of the business to family members or to key management.

Executive Benefits Planning

Executive benefits planning includes the development of selective compensation plans to attract, retain and reward key employees. It also involves the design of qualified retirement plans coordinated with the personal and business goals of the business owner or key employee.

Insurance Plan

Insurance planning is needed to protect the business owner's family should the owner die prematurely. The overall insurance plan should coordinate with both aspects of the owner's life—business needs (Key Man, credit life, etc) and personal needs (income replacement, college funding etc.) Insurance planning could also be part of the estate tax planning listed above. 

The Team Approach

business ownerMuch like a building requires an architect, the business owner needs to find a Financial Architect who can put together a financial plan that meets the owners goals, both business and personal. Once the plan is in place, this architect will bring the team together to address their areas of expertise. At a minimum the team should consist of the following:

  • Business Owner - articulates their family and business vision
  • Tax Attorney - Address Corporate & Estate Taxes
  • CPA / Accountant - Bookkeeping, income tax planning
  • Investment Advisor - Manage outside assets
  • Insurance Advisor - Risk mitigation through insurance products

With the team in place, a business owner still needs someone to coordinate the specialist in order to make sure the plan matches their vision. What is needed is a 'Financial Architect'. The Financial Architect can work with each specialist to make sure that the owner's plan is optimized as well as implemented.

Ralph Pence
Post by Ralph Pence
April 17, 2020