Small Business Financial Planning

The goal of business planning is to extend success and profitability into the future and to protect your hard-earned equity. Small business financial planning integrates your business and personal objective and establishes the link between where you are and where you want to finish.

At Collision Select, your auto repair business is our number one priority. We can help your business succeed and help you attain all of your business goals. When it comes to small business financial planning, there are three stages that might describe where your business is at the moment:

Formation Stage:
Covering the basics for a new business

Do you have a written will?
Have you reviewed your present will to be sure it is up to date?
Have you considered key-person life insurance on yourself to protect your family and cover debts?
Have you protected yourself against disability?
Do you provide group life, disability and medical plans for your employees?
Have you completed an estate analysis to compare your assets with your objectives?
Have you considered a stock redemption agreement or a buy/sell agreement with partners or stockholders?
Have you considered tax-sheltering income in an individual retirement account?
Accumulation Stage:
When your business is established and growing

Have you reviewed your present will and business arrangements?
Have you completed an estate analysis to review your tax situation?
Have you considered using equivalent exemptions trust agreements to save estate taxes?
Have you considered increasing group insurance and key-employee insurance?
Have you reviewed the income and estate tax advantages of sheltering more income in a qualified retirement plan (pension, profit-sharing or 401(k)?
Have you considered increasing fringe benefits for employees?
Mature Stage:
When you approach retirement

Have you reviewed wills and trusts with your accountant, attorney, bank trust officer and life insurance agent?
Have you increased selective fringe benefits (salary continuation plans and splits dollar plans) for your most important employees?
Have you considered deferring income through deferred compensation plans?
Have you considered making charitable bequests to save income and estate taxes?
Have you considered reorganizing your business to make transfer easier?
Have you considered reorganization agreements?
There are also several types of business concerns:
Buy-Sell Plan/Succession Plan

Creating a structure for transferring a business from one owner to the next is called succession planning. It brings together critical players – the owners, partners, key employees and the advisors.

Succession planning begins with an examination of operational, financial and personal issues. The end result is development of a succession plan.

This process also can:

Improve operations
Boost profitability and growth
Strengthen relationships among everyone involved
The buy-sell agreement is at the heart of succession planning. Properly designed and funded, this plan can determine who will take over the business and at what value. It can transfer ownership to those who will remain active in the business and make sure you and your heirs receive a fair price for your business interests.

Partnerships or corporations can set up a buy-sell agreement in the form of:

A cross purchase, in which the estate of the deceased owner sells the business interest to a surviving business associate
An entity purchase, in which the estate sells the business interest to the business entity
Funding a buy-sell agreement

Funding with life insurance ensures that your family or estate is paid fair market value in cash at the time when it is most needed. If the business is sold to a surviving owner, life insurance provides the cash needed to buy your interest, thereby assuring a smooth, complete transition of management and control.

Compensation Programs

Compensation programs should be based on the unique needs of your business and its employees.

Do you offer competitive salaries and bonuses?
Do you provide adequate life insurance and disability benefits?
Can you afford retiree benefits?
Deferred Compensation

By purchasing a life insurance policy and placing it in a non-qualified deferred compensation plan, an employee can defer taxable income. Both the employer and employee have flexibility because non-qualified plans are not subject to ERISA contribution limits nor are they subject to discrimination tests in terms of who must be included in the plan. Thus, an employer could fund this benefit for only himself/herself or include other top members of the firm. This kind of plan is often added when an employer who already has a tax qualified 401(k) plan or another non-qualified deferred compensation plan wishes to do more.

Current taxable income is reduced by the amount being deferred. Funds deposited in a deferred compensation plan can accumulate without current income tax to the individual. Taxes are due when the funds are withdrawn, at the current income tax rate which may be lower than the individual’s current tax bracket.

Deferred compensation plans can be constructed to include owner- employees, key employees or all employees of a firm.

Key Employees

Key employees literally hold the key to continued success of a business. They are your most valuable asset. By developing strategies for retaining key people, you lay the foundation for a profitable and secure future. Foremost among strategies should be a review of your compensation and benefit programs. A strong benefit program is essential for attracting and keeping key employees who will play a critical role in your company’s future profitability and success.

Split Dollar

A plan to purchase needed personal life insurance at a lower cost through the sharing of premiums by an employer and employee. Helps the employer retain key employees with a fringe benefit that has minimal effect on cash flow and surplus account of the business. The employer can recover its contributions to premium payments when the policy is surrendered or as the result of a death claim.

Advantages:

Taxes may be saved by using corporate dollars
The employee receives life insurance coverage that is needed
The employer recovers its premiums paid to the policy
Split Dollar may have estate tax advantages, especially with the use of an irrevocable trust.

Our knowledgeable, dedicated financial specialists can help you navigate the maze of financial terms and options. Contact Collision Select today and let’s discuss how Small business financial planning can be tailored to your auto repair business.