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by Bill Harris

If you're like most entrepreneurs, you've invested everything you have into your business. And that's a huge mistake.


In a recent survey by the American College, about three-quarters of entrepreneurs admitted they didn’t have a formal written retirement plan. Shocked? Don’t be. The dominant entrepreneurial mindset goes like this: Take care of the business today, and it will take care of you down the line. Don’t lose focus.

Many entrepreneurs become so passionate about what they’ve built and where it’s headed that the thought of thinking a bit more about their own well-being--taking a bigger salary, for instance, or selling some equity or stock options to redeploy in personal accounts--seems at odds with their goals for building the business.

That’s precisely the thinking that can bring on huge risks to business owners and their families and heirs. The problem with all that passion, focus, and confidence is that it makes a lot of brilliant business minds either oblivious to or dismissive of the single most important factor that will guarantee--yes, guarantee--lasting wealth: diversification.


Having every penny of your net worth riding on one investment is lunacy--even if that investment is your thriving, growing business. No matter how great everything is going today, can you tell yourself with 100% certitude that the good times are guaranteed to continue? That's not me betting against your success. I’m just suggesting you protect yourself and your family. And the only way to do that is to diversify some of your assets away from your business.

You’re dangerously naïve if you think diversification is some pedestrian concept for rank-and-file regular folk. It’s no less vital for every entrepreneur--including Facebook’s new millionaires. I’d bet good money that your personal finances are lacking in the diversification department. If you think I’m wrong, here’s a checklist of investment strategies to think about. See how you measure up.


1. Fund a dedicated retirement account.

This sounds stupidly obvious--and yet only a fourth of the entrepreneur population follows through. If you don’t already offer a retirement plan at work, you need one, and so do your employees. If you work only with contractors, you may be eligible for an individual 401(k), which allows you to sock away up to a maximum of $50,000 this year for retirement. (If you’re over 50 years old, you can put away even more.) And fund it to the maximum allowed. If that means pulling more salary from your baby, so be it. I hope your business remains so successful that what you end up socking away in retirement accounts becomes a superfluous footnote on your net worth years from now. But in the meantime, this account is insurance against any number of possible outcomes that don't follow your script. Besides, there are some tax advantages to doing some smart retirement planning.

2. Don’t overload that account with your own stock.

Your retirement account should not be filled up with company stock. Period. This is where your overconfidence and passion can kill you. You need to invest outside of your business. And you need to invest outside your circle of competency. Sound crazy? Well, what I see all too often are successful entrepreneurs whose idea of diversification is to buy stock or invest in start-ups that are all in the same industry. That’s like suggesting a wine cellar is well stocked because it has 100 cases--of the same wine and vintage.

3. Sell some equity; diversify; repeat.

Exercise some options; sell some equity--because you can’t tell me (or, more important, yourself) that you know with 100% certainty that your business will never suffer a setback. Besides, diversify now, and you’ll never find yourself having to sell under pressure in the event you need to raise some cash when you can’t extract maximum value from your options or equity.

4. Consult a personal finance team outside the business.

The person or team handling the books for your company is not the ideal tax advisor for your personal wealth. You want a tax pro who specializes in tax strategies for entrepreneurs. Task No. 1 is to devise a long-term strategy for handling options and equity; there are major IRS potholes that can seriously erode your net profit when you exercise.

Lastly, an estate-planning attorney is another must-have. You’re working so hard to build your business; aren’t you equally passionate about making sure the wealth you accumulate will be shared exactly as you want? Setting up the proper trusts, perhaps a foundation, is how you ensure your business success continues to pay off for you, your loved ones, and the causes you are passionate about.


Disclaimer:  The opinions expressed are solely those of the author.  As always, you should receive the advice of a qualified retirement plan professional, CPA and estate-planning attorney regarding the content of this article.

Article provided by ©Inc.

by Mike Handelsman

Don't let your emotions--sorrow, anger, or a sense of loss--hijack the sale of your small business. Here are tips on keeping a level head.


Selling the small business you've built over many years, or even decades, is never easy. But for many entrepreneurs, the hardest part isn't preparing the business for the marketplace or finding the right time to exit.


As a business owner, you have invested a significant portion of your life in your enterprise. Over time, you likely have developed a personal connection to your company and for better or worse, your small business has become an important part of your daily life.


So when it's time to say goodbye, it can feel like you are losing a member of the family. Sorrow, anger, a sense of loss--entrepreneurs experience a wide range of emotions during the sale process. And if those emotions are left unchecked, they can have a real dollar impact on the outcome of your business sale.


Although it's natural to feel sentimental or even a little sad, you can't let emotions like anger and defensiveness alienate prospective buyers or dictate the terms of the sale. As much as possible, you need to find ways to remain objective, creating space between your emotions and your decision-making routines before, during and after the sale.


Before the Sale


Emotional baggage jeopardizes the profitable and timely sale of your small business. As a result, one of the most important things you can do to manage your emotions is to prepare a comprehensive exit strategy long before you are ready to list your company in the business-for-sale marketplace.


By planning your exit in advance, you will be more emotionally prepared for the transition when it actually occurs. Your family members should also be involved in the exit planning process since the business has likely been a major part of their lives and they may need time to adjust to the idea of someone else owning your company.


At some point in the exit planning process, you will need to seriously consider what you will do after the sale has been finalized. Sellers who lack a solid plan for the next stage of life find it difficult to let go of their businesses and are more likely to allow personal emotions to hijack the process.


During the Sale


During the sale process, it's critical to remain focused on operating your business until it has been legally transferred to the new owner(s) since deals can suddenly evaporate during due diligence or other stages of the process.


But to commit time and energy to running your business, you will likely need to rely on the assistance of third-party professionals (e.g. brokers, attorneys, accountants, etc.) for various seller functions. The added benefit of outsourcing specific seller functions is that professionals bring objectivity to the process so that interactions with prospective buyers are based on facts, not emotions.


It can also be useful to confidentially consult with peers during the sale process. Rather than wrestling with your emotions on your own, consult with trusted members of your peer network and seek advice about what they experienced during the sale of their businesses.


Also, you should think carefully about what role you may be willing to play during the transition of your business to a new owner. Many buyers desire that the previous owner remain with the business, on a consulting basis, for three to six months after the transaction, to help ease the transition.


Make sure that you're emotionally prepared to play this role in a professional manner. It is important to recognize that key decisions will no longer be your own and that you may not agree with all of the changes the new owner is making.


After the Sale

Business owners are frequently flooded with emotions after they have finalized the sale and transitioned out of the business. Now that they finally have time to reflect, sellers can feel a sense of loss, especially if they developed close friendships with their employees.


But unless the new owner has asked for your advice, it's a bad idea to check in on the business after the sale has been completed and you've moved on. It's likely that the buyer will have made changes in the business and it can be difficult to accept the fact that someone else is calling the shots in the company you built. Similarly, try to avoid talking about the business with your former employees in social situations since little good can come from second-guessing the new owner in front of current employees.


Although the emotions you may be feeling are real, the bottom line is that you and your business have moved on. Instead of looking backward, it's time for both you and the business to move forward and embrace the next stage of life.


Article provided by ©Inc.

BuildingAWall_Body.jpgWhen a business is growing quickly and revenue escalates, or when times are tough and owners infuse personal capital into the company, keeping personal and business finances separate can be challenging. However, establishing a firewall between your personal and business assets and income offers you a better sense of how your business is performing as well as a host of other benefits, says certified public accountant Michael Carney, founder of MWC Accounting, Inc.


“Many times, when the owner has built the business from the ground up, he or she sees the money in the business as his or hers. For all intents and purposes, it is, but when you start paying personal expenses from the business or using personal assets to support the business, your accounting begins to get really messy,” he says.


Once a business has an established track record and a critical mass of employees, it’s important to establish a team and protocol for handling payroll and accounting. This protects both the business and the owner against costly accounting errors, makes tax reporting more organized, and helps owners better understand their business and personal finances, says Carney. Toward that end, company management and employees should use company credit cards whenever possible, and expenses should be vetted through a formal filing and request-for-reimbursement process.

Image-CTA-v1.gifStructuring owner remuneration to benefit from business success can also be an important way to keep personal and business finances separate and compensate company owners in a manner consistent with business performance. In addition to a fair paycheck, owners and shareholders may elect to draw from business profits at quarterly, annual, or other regular intervals, receiving additional compensation based on business performance. Bonus or commission structures are also common, providing additional performance-based pay dependent on reaching financial or other milestones.


In some cases, owners have invested personal assets or incurred business debt through their personal resources. It’s not uncommon for a business to “owe” its owner money funded through savings, credit cards, or personal lines of credit such as home equity loans, from the early years or from when the business might have struggled and needed a short-term cash infusion. Established businesses should treat such personal contributions as loans to the business, structuring repayment to the owner over time.


Access to such capital is a good reason for businesses to focus on building personal credit profiles, which allow banks and investors to see “clean” balance sheets delineating personal and business assets. Carney cautions that unauthorized draws from the business or lack of clear compensation patterns are red flags to lenders and those who might otherwise invest in your company, such as angel investors, venture capital firms, and private equity sources.


The IRS is another staunch supporter of asset and income separation. Should your business ever come under scrutiny in the form of an audit, clear records and delineation of business and personal assets makes the process much easier and can mean the difference between disallowing certain business expenses and facing additional taxes, penalties, and interest.

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