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Why Business Owners Need Financial Planning

If you’re a business owner, you are likely the Chief Everything Officer at work and have many responsibilities. A business owner’s situation is unique since they are asset-rich and cash-poor since their wealth is in their business-literally.


Regardless of the income a business generates, the ages of the owners, or how many employees it has, a business financial plan can help plan for future and unexpected events. A financial plan is a road map of what the business is trying to achieve in the short and long term. A business financial plan can help business owners with the following:


  • Developing a long-term financial strategy
  • Measuring progress toward goals
  • Developing budgets
  • Managing cash flow
  • Prioritizing expenses and capital purchases
  • Determining an appropriate time for mergers, acquisitions, or a sale
  • Help fund future opportunities
  • Determining appropriate financial strategies to grow assets

For more complex business situations, these are some things that a business financial plan may recommend and include:


A will for each owner– A will allows business owners to select who will receive what they own when they die. Without a will, the state the owner resides in will determine how the business and other assets outside of the business are divided.


A business estate plan- Businesses generally are illiquid, which can create problems for heirs or business partners if the business transfers to probate. When a business owner dies, liquidation must occur, which can be difficult without an estate plan. Here is why owners should consider a business estate plan:


  • To help protect the wealth you’ve created.
  • To help ensure the business continues.
  • To help manage the estate and gift taxes.
  • To protect your employees, business partners, and heirs.

What happens if there isn’t a business estate plan?


According to state laws, the business assets will transfer in probate if a business owner dies without a will or an estate plan. The transfer may result in tax consequences depending on the estate’s value. Once the transfer occurs, the business becomes part of the deceased’s estate. Here are other things that may result from not having a business estate plan:


  • The state assumes the responsibility of the business as part of the owner’s estate.
  • Employees may lose their livelihood
  • Business partners may be impacted
  • Legal expenses that were avoidable will accumulate
  • Heirs have to wait to receive their inheritance

Creating a business estate plan will likely involve legal, tax, and financial professionals and an insurance professional. This team helps ensure the business transition goes as intended through specific actions outlined in the business’s estate plan. Here are items to include in a business financial plan:


Life insurance– Life insurance provides a death benefit for purchasing an owner’s share of the business by other partners so that heirs are compensated. Life insurance can satisfy business liabilities or offer financial resources to keep the business intact as the transition occurs from the deceased’s ownership to someone else.


Disability insurance– Disability insurance provides a monthly benefit to the owner based on a percentage of their monthly income.


A business succession plan– A succession plan is a document that describes how the business will transition to partners or family members or be sold to new owners. The plan also outlines the operations and management structure during the transition period.


A living trust- This legal document provides directives for the owner’s assets and names either a legal entity or person as the Trustee. This document helps ensure that regardless of what happens, the business and its assets will be protected and end up with whom intended.


A Financial Power of Attorney– This individual will handle the business’s finances if the owner cannot and may help manage the owner’s finances. They will oversee the transition of the business as the business’s or owner’s estate plan dictates.


A business financial plan helps business owners measure their progress toward their goals and recommends actions to help protect the business if the owner dies or becomes incapacitated. Contact my office for an initial conversation about your business, and together we will determine the next steps for developing your business estate plan.



Important Disclosures

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which insurance product(s) may be appropriate for you, consult your financial professional prior to purchasing.

This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.

LPL Financial Representatives offer access to Trust Services through The Private Trust Company N.A., an affiliate of LPL Financial.

All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.

This article was prepared by Fresh Finance.

LPL Tracking # 1-05355004






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