Consider This
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The need for accurate records is vital for the growing company, escape your memory. Once the business is operating smoothly and profitably, start paying yourself back. Your accountant can work with you to determine an affordable amount of money to put away each month for contingencies, and to help you keep track of paying yourself back. More.
- Health insurance is an important benefit to bear in mind for your employees. Speak to an insurance professional about health insurance, as it takes on added importance with employees. A good plan is often an important tool to recruit and retain top candidates. If you can't yet afford health insurance for your employees, offer to subsidize the cost of enrollment in a spouse's plan. Or make a company plan more affordable by splitting the cost of premiums with them. Keep in mind that any benefits you provide can yield tax advantages for the business - and higher morale and productivity for your employees. More.
- Consider commercial auto coverage if you use a personal vehicle for business. Talk to an insurance professional about commercial auto coverage. Many personal auto policies exclude coverage if a vehicle is used primarily for business. Commercial auto insurance covers automobiles, trucks and vans used for business. Most policies also cover your business for the liability incurred when employees use their own cars for your business. More.
- You can often reduce insurance premiums by opting for higher deductibles. Increasing the out-of-pocket amounts you pay before receiving benefits for a claim can lower your health or auto insurance premiums. If you have cash reserves or access to low-cost funds, it may be a good idea to ask your insurance professional how much you can save on your premium by accepting a higher deductible.
- Divorce-proof your company. The unfortunate fact is that many marriages end in divorce. If your marriage or relationship were to go bad some day, what would happen to your business (especially if you and your spouse are co-owners)? Ask your lawyer what steps you can take today to protect your company. You hope it will never come to that, but if it does, you'll be prepared.More.
- Should you use an accountant or a tax preparer for your taxes. Probably the least expensive way to have your taxes done is to use a tax preparer. He or she might work for a tax preparation firm or in a small business. However, tax preparers are usually uncredentialed. There's no standard training required or exams to pass in order for someone to use this title. You might get a good one, but you might also find one who is unfamiliar with small business issues or current changes to the tax laws. Also avoid preparers (or other types of advisors you may encounter) who hit you with a hard-sell to buy investments. More.
- Is your business right for an Employee Stock Option Plan? Talk to your accountant or lawyer about ESOPs, which are not only an employee retirement benefit, but also a performance incentive. ESOPs can be key in the company's future transition, as well (see The Transitioning Company). The business funds employee retirement accounts that invest in your company's stock; employees own a stake in the company and are motivated to see it prosper. An employee may sell stock starting at age 55. The year after the employee retires, the ESOP must issue distributions to the employee. ESOPs can be expensive to set up and are typically for larger companies. More.
- When selling your company, make sure your buyers' finances and credit are in order. If you're not getting full payment for your company up front, ask your accountant or lawyer to investigate the buyer's finances and history thoroughly. Understand that if you hold a note for part of the sale price and the buyer encounters financial problems, you might have to compete with other creditors for repayment. In such cases, there are different classes of creditors; be sure that you are in the secured creditor class-that the debt to you is secured with some kind of valuable collateral. More.
- If you stay on after transitioning your company...the buyer might ask that part of your compensation, if you take on a consulting role or have some involvement in the business, be tied to the company's future performance. Any such offer, whether it involves stock or other arrangements, should be examined carefully because of the risk it carries. More.
- Start the insurance ball rolling early. If you are working with your insurance agent to update your coverage, keep in mind that some policies take a while to implement. Apply for these early enough so that everything is in place when you are ready for prospective buyers to come calling. More.
- Make sure your team of advisors plays well together. Some of the functions of the transition can be performed by more than one of the people listed above. Valuations can be made by accountants, business appraisers or investment bankers, and if you can afford it, it's not a bad idea to get valuations from more than one source, because they'll approach the question from different viewpoints, and proper valuation is key to getting the best deal. If you do use different advisors whose expertise might overlap, be sure that everyone understands who will be the key negotiator, so that you don't have a lawyer and an investment banker both trying to negotiate terms independently and inadvertently weaken your side. More.
- The transition phase is about much more than money. Remember the importance of your "psychic income" during the transition. Money is a factor, but your personal satisfaction and happiness is another. If you are staying on after the sale, make sure the chemistry between you and the buyer is good. It's also vital that the roles and responsibilities are clear, and that what you are being asked to undertake is personally interesting to you and works to your strengths. On the other hand, if you're planning to hit the beach, make certain you are ready for that, as well. More.
- You're not locked into one business entity for the life of your business. Once the company's operations are well under way, growth strategies might be better served by a different business structure. As a sole proprietor, you might want to take on a partner to ease the workload or reward a key employee with a stake in the company. Or your company might enjoy greater growth than you envisioned and you might opt to incorporate and issue stock. Be aware that some changes are more difficult than others, but they can be accomplished with the help of lawyers, accountants or other professionals. More.