A robust legacy plan includes many facets – some financial and some that are based on your values as a firm founder
There are legal documents and policies we can optimize to safeguard assets from various challenges, but securing your legacy revolves around your priorities
Working with a team of experienced financial professionals focused on helping entrepreneurs and their families throughout all stages of your financial journey ensure that risks are effectively managed
You’ve put years, maybe many decades, into running your business. It has been your professional life’s work that began with a fuzzy vision, a small amount of seed capital, and a large hunk of ambition. If you’re like most entrepreneurs, the road to success was paved with uncertain crossroads. There were bumps along the way, but you always pressed ahead, occasionally tweaking your operations and considering all the possible risks. Now, you have built not just a financial asset for you and your family, but something of tremendous emotional value and personal pride.
Are you at the point in your small-business journey where it’s time to focus on protecting what you’ve created and earned? That’s the situation for so many business owners today. The path to exit is never easy, and we have detailed that in previous blogs. Today let’s focus on how to effectively manage risk to help ensure that your biggest asset is safeguarded from so many potential potholes that can appear unexpectedly. Here are six strategies to secure your legacy as firm founder.
1. Life Insurance and a Plan
It's not all that insightful to suggest that you acquire an adequate amount of life insurance. That’s almost “Financial Planning 101” stuff. Still, life insurance can be a foundational component of a founder’s family protection strategy. It offers a financial safety net for you and your loved ones.
But here’s something you must not overlook: communication. Talk to your kids (or whoever would inherit your business) about the operational, financial, and personal aspects of the business. While a lump sum of cash can help settle money matters upon your passing as the owner, your “why” of wealth, and the firm itself, must endure if your wishes include having the business live on.
2. Succession Planning
The need for life insurance to help mitigate financial uncertainties naturally leads us into the succession planning conversation. By now, you might realize that partnering with an experienced financial planner who is well-versed in working with entrepreneurs is necessary. We can team with your CPA, attorneys, and other business professionals to ensure that no steps are missed in the asset-protection process.
Along with keeping your assets safe in the present, we can plan for the future. A comprehensive succession plan lays the groundwork for a smooth transition of ownership and management of the business in the event of disability or death.
It’s not all doom and gloom, though. Founder’s family risk management strategies encompass the reality that you might actually want to retire someday! Crafting an exit strategy can be a fun process, including you and your spouse detailing how you want to spend your golden years while seeing your kids or perhaps younger business partners carry your small business’s torch.
The key thing with succession planning is to, if you haven’t already, identify and groom would-be successors within your organization. Family members, tenured employees, or external buyers could all be groups from which you choose. Documenting the succession plan, routinely updating it as conditions change with your business, and thinking about your money values are crucial to managing risk and ensuring that your legacy carries on.
3. Asset Protection
So this is another step that you’ve hopefully considered ever since your firm began as a going concern. There are so many types of insurance policies out there today, and it takes experience and expertise to know which suits your business. Big picture, however, it is imperative that you work with a professional who can spot financial and liability risks so that your family is safeguarded.
Beyond insurance policies, structuring your business as a limited liability company (LLC) is a common practice. We can also get more nuanced by forming trusts to shield assets from business liabilities – that can go a long way toward instilling peace of mind within your family.
Among the most straightforward tools to protect your assets is to create and maintain a will. This is often when deep discussions are had regarding who will take over running the business. It can’t just happen over dinner, though. You must work with legal professionals to name which individuals will take on which duties.
Asset protection plans also include a softer side – conversations about professional priorities and your wishes should take place. It’s tough to grapple with the reality that someone else will run your business’s show one day. Still, a well-constructed and constantly updated will keeps the distribution of your assets private while following the laws of the state.
4. Emergency Fund
There are plenty of parallels between effectively managing risks as a firm owner and being savvy on the personal finance front. An emergency fund is one such example. Stashing cash in a high-yield savings product won’t save the day in the event of a major lawsuit or some financial disaster, but it helps relieve worries that arise when gaps in cash flow occur.
An emergency fund may also be like your own insurance policy if and when you decide to hang up your proverbial cleats – it can be a financial resource for you and your family without having to resort to tapping other accounts or policies.
5. Disability Insurance
Don’t overlook disability insurance. A properly established policy protects your income and financial well-being should you become unable to work due to illness or injury. For many founders, this area becomes hugely important as they approach a potential exit. It’s then when their value is the highest.
Disability insurance is also critical to maintain during leaner times, perhaps when business growth is uncertain and as financial responsibilities mount in midlife. It is crucial to recognize that you and your family face significant risk when your income is closely tied to the success of the business. Having a plan to replace income to cover ongoing expenses if you’re ever unable to work is an effective risk mitigation strategy.
6. Don’t Forget the Little Things
It’s easy to get caught up in all the responsibilities that fall under the asset- and liability-protection umbrella. I work with so many entrepreneurs where their business is like second nature. Certain initiatives and operation plans come to them without hardly any formal strategizing. That can be a risk, though.
Outlining all the small facets of the life of a small business CEO so that the next ones in line can hit the ground running is key, particularly if you or your family plan to have a financial stake once you move on.
The Bottom Line
As the founder of a small business, the more years you have under your belt as the leader, the more important it becomes to plan and protect what you’ve built. Doing so ensures that your family’s financial future is secure. There are a range of strategies and tactics we can construct, but you must also take time to consider your values.
What legacy do you want to leave? Which individuals should run the business once you have stepped aside? Defining roles, leveraging the help of outside experts, and forming a personalized plan are all key steps to setting up your business for success now and for always.