Creating a Successful Business Succession Plan

An exit strategy helps business owners ensure the long-term success of their company

A good succession plan creates a blueprint for ownership transfer as you exit your business. It helps you prepare for your retirement, ensuring you have the income you need. And setting a well-conceived plan into motion protects the people around you, including your heirs, employees, and customers by laying the groundwork for a smooth transition.

Yet, despite these important benefits, many privately owned businesses don’t have a succession plan, leaving the business vulnerable to unforeseen circumstances. For instance, if the business owner dies or becomes incapacitated, there may be no one to step in and lead the company as it regains its footing. Planning early can head off these issues and produce other benefits, including having the time to retain key employees and mitigating tax burdens triggered by a sale.

 Making a plan

As a first step to creating a succession plan, assemble a team of experts. Work with a lawyer, accountant and financial professionals who can help you make any necessary changes to your business’s legal structure and ensure the proper paperwork is in place.

Get an appraisal from a third party to determine the value of your business. An appraisal can help you set sale prices or set prices for ownership shares. If your valuation comes back lower than you expected, work to increase the value of your business before it’s time to sell.

Next, think about what kind of relationship you want with the business after you exit. Do you want to maintain an interest in the company? Do you want to stay on the payroll as a consultant? Would you rather cut all ties and never think about it again? Knowing where you want to land will guide your exit plan.

Create manuals for management and employees that allow your successor to jump in and get acclimated relatively quickly. Be sure there are employees who can take over your responsibilities and that there are no tasks only you know how to do.

Choosing a successor

Once you know the role you want to play, it’s time to choose a successor. Broadly, your options are:

• Heirs: Transferring ownership to another family member is a popular choice. Whether it’s your spouse, child or someone else, think objectively about their abilities. Do they have the skills necessary to run the business and the desire to take over?

• Business partner: If you want to sell your interest in the business to your partner or partners, you may consider setting up a buy-sell agreement. A buy-sell agreement specifies when an owner can sell their interest, to whom they can sell and for how much.

• Employees: Selling to someone in management at the company can be a good way to ensure continuity in succession. Managers tend to have a good understanding of operations required to keep the business running smoothly. Transferring ownership to a group of employees is an option as well. An employee stock ownership plan (ESOP) can help. An ESOP is essentially a trust into which employees can put funds that convert to ownership shares later. Allowing employees an interest in the company’s future may encourage them to do whatever they can now to help the business succeed.

• Third party. If your heirs or employees are not interested in taking over your business, you can sell to an outside buyer. Plan for this possibility well in advance, as this option can take a lot of time and effort as you search for a buyer and negotiate the terms of a sale. Newcomers may ask you to stay on with the company as a consultant for a short time to smooth the transition.

Updating your plan regularly

A succession plan is only useful if it’s up-to-date. Set a regular schedule for reviewing your plan. As things change—say your chosen successor is no longer an option—update your succession plan accordingly. It can be the difference between the business succeeding under a new generation of leadership or ending with you.

SOURCES:

https://s3.amazonaws.com/mentoring.redesign/s3fs-public/SCORE-MassMutual-eGuide-Succession-Planning.pdf

https://www.nceo.org/articles/esop-employee-stock-ownership-plan

https://www.nolo.com/legal-encyclopedia/buy-sell-agreement-faq.html

This article has been published by Oechsli and Provided by Patrick Jarvis, 312-416-8480. 

Patrick Jarvis is a registered representative of and offers securities and investment advisory services through MML Investors Services, LLC. Member SIPC. www.SIPC.org. Cadia Financial Group is not a subsidiary or affiliate of MML Investors Services, LLC, or its affiliated companies. 2650 Warrenville Road, Suite 100, Downers Grove, IL 60515. 630-441-1000. CA Insurance License #0L79588

CRN202212-275641

4 Smart Money Moves for 2021

With the new year in full swing, it’s a great time to take stock of your personal finances. From building a budget and saving for retirement to getting a jump on this year’s taxes, here are some of the smart money moves to consider to help brighten your financial life in the new year.

1. Build a budget

Creating a monthly budget can help you better understand your spending and identify how much money you can put toward your financial goals.

First, take your monthly salary or wages after taxes are taken out. Next, tally your necessary expenses for each month, including utility bills, mortgage payments, rent, transportation, debt payments, and groceries. Keep in mind that while some expenses will be fixed—such as your internet bill or car loan payments—others might fluctuate from month to month. For example, your electricity bill could be much higher in the summer if you run an air conditioner to beat the heat. Be sure to take these fluctuating amounts into account, using last year’s bills as a guide to help you get a reasonable monthly estimate.

Now, subtract your necessary expenses from your income. What you have left represents the money you can earmark for discretionary spending. This is the pool of money you can draw on for savings, retirement accounts, or additional payments on debt. Set aside money for these goals first, and consider automating transfers to designated savings accounts and your retirement accounts. The money that’s left over can be used for other purposes like travel, entertainment, restaurant meals, and hobbies.

2. Set aside an emergency fund

As you’re planning your budget, be sure to set aside money for an emergency fund. Separate from your other savings, an emergency fund is the money you keep on hand to cover a sudden, unforeseen expense or loss of income. Consider saving enough to cover three to six months’ worth of expenses. That way, you may be better positioned to get through an unexpected car repair, an illness, or time spent job hunting after a layoff.

3. Contribute to retirement accounts

In 2021, you can make up to $19,500 in contributions to a traditional 401(k), or $26,000 if you’re age 50 or older. You can contribute a combined $6,000 ($7,000 for those 50 and older) to Roth and traditional IRAs. Consider maxing out your contributions if you can. At the very least, contribute enough to workplace plans such as a 401(k) to receive employer matching funds if your employer offers them. 

Contributions to a traditional IRA or 401(k) lower your taxable income in the year you make the contributions. That money can grow tax-deferred inside the accounts and is only subject to income tax once it’s withdrawn after age 59 ½. Contributions to Roth accounts, on the other hand, are made with after-tax dollars, which can grow tax-free inside the account. Roths allow you to make tax-free withdrawals in retirement.

4. Look ahead to next year’s taxes 

If you received either a big refund or a big bill the last time you filed your taxes, you may want to consider adjusting your withholding on your W-4 to more closely match how much you’ll actually owe in taxes. Withhold too little, and you’ll end up owing money to the government. Withhold too much, and you’re essentially giving the government an interest-free loan until they send your refund.

If you experienced any major life changes—the birth of a child, marriage, or divorce—bear in mind that they could have big tax consequences. For example, if you have a baby, you could be eligible for the child tax credit. If you get married or divorced, your filing status could change.  

Keep track of your deductible expenses throughout the year. Document charitable contributions and business, education, and medical expenses to keep an accurate picture of what your tax liability will be.  

Getting your finances in order early in the year can help you take better control of your money habits. And taking a close look at your income, expenses, retirement contributions and debt payments makes it easier to set reasonable goals—and to measure the progress you’re making toward those goals. 

SOURCES:

https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-401k-and-profit-sharing-plan-contribution-limits

https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-iras-contributions#:~:text=The%20annual%20contribution%20limit%20for,your%20filing%20status%20and%20income.

This article has been published by Oechsli and Provided by Patrick Jarvis, 312-416-8480. 

Patrick Jarvis is a registered representative of and offers securities and investment advisory services through MML Investors Services, LLC. Member SIPC. www.SIPC.org. Cadia Financial Group is not a subsidiary or affiliate of MML Investors Services, LLC, or its affiliated companies. [2650 Warrenville Road, Suite 100, Downers Grove, IL 60515] CA Insurance License #0L79588

 CRN202301-276526

How Does Dollar-Cost Averaging Work?

When you’re in a traffic jam on the highway, you may find yourself trying to merge into whichever lane is moving fastest at the moment, only to find yourself falling behind drivers that stayed in one lane the whole time. In the same way, you may feel the urge to time the stock market, attempting to put your money in and take it out at just the right moment—a behavior that can work against you.

The market fluctuates, sometimes unpredictably, and often discipline and a steady hand are more effective than attempting a clever trading strategy. Dollar-cost averaging is a simple investing method that can help ensure that you invest regularly and buy more stock when prices are cheap and less when they’re expensive. The strategy helps you avoid making emotional decisions in the heat of the moment and doesn’t require that you pore over research, hoping to anticipate the next market move.

How dollar-cost averaging works

Dollar-cost averaging can potentially soften the effect of market fluctuations and allow you to take advantage of long-term trends. Rather than investing in one lump sum, you put a given amount of money in the stock market on a regular schedule regardless of the way prices are trending. When you do this, you naturally buy more stocks when prices are down and fewer when stocks are up, which can reduce your average cost per share.

Example of dollar-cost averaging

Let’s see what dollar-cost averaging looks like in action. For this example, say you’ve decided to invest $500 in the same stock on the 15th of every month. Because the price is always changing, you end up purchasing different numbers of shares from month to month. A year of investing might look like this:

In this scenario, you end up holding 118 shares of stock on December 15, for which you paid an average of $51.83 per share, far lower than the $80 stock price experienced in December. Because you kept the dollar amount the same every month, you naturally purchased more shares as the price per share dropped and fewer shares as it rose back up, winding up with a better average price.

It’s true that you would have paid even less if you had put all $6,000 in on March 15, when the price was lowest. But it would likely have been difficult for you to predict the stock’s low. By using dollar-cost averaging, you gave yourself an advantage, paying a low average stock price, without having to time the market at all.

Disciplined investing

It can be hard to predict short-term market movements, even with sophisticated research and analysis. By making investments on a preset schedule, you reduce the potential for human behavior to adversely affect your strategy—by selling everything after a sudden drop in stock prices and locking in a loss, for example.

Instead, you’ll naturally buy the dip. That is, you’ll buy more after the price drops, lowering your average per-share cost and setting you up to take advantage of potential future gains. What’s more, if thinking about the ups and downs of the stock market makes you nervous, the simple regularity of dollar-cost averaging can help you keep your emotions in check and stay focused on your long-term goals.

SOURCES

https://www.investor.gov/introduction-investing/investing-basics/glossary/dollar-cost-averaging

https://behavioralscientist.org/how-to-save-investors-from-themselves/ https://www.finra.org/investors/insights/three-things-know-about-dollar-cost-averaging

This article has been published by Oechsli and Provided by Patrick Jarvis, 312-416-8480. 

Patrick Jarvis is a registered representative of and offers securities and investment advisory services through MML Investors Services, LLC. Member SIPC. www.SIPC.org. Cadia Financial Group is not a subsidiary or affiliate of MML Investors Services, LLC, or its affiliated companies. [2650 Warrenville Road, Suite 100, Downers Grove, IL 60515] CA Insurance License #0L79588

Dollar-Cost Averaging does provide an easy disciplined way to investing. Dollar-cost averaging does not assure a profit and does not protect against loss in a declining market. Also, using this investment involves continuous investment in securities regardless of fluctuating price levels of securities. Therefore, an investor should consider his/her financial ability to continue purchasing through periods of low price levels. Continuous or periodic investment plans neither assure a profit nor protect against loss in declining markets.

 CRN202303-279368