Many of the clients I work with are entrepreneurs in the technology industry. These are some of the questions that I am commonly asked during the planning process. Every time I am asked one of these questions, it is usually followed up by me asking “what is it that you are trying to accomplish?” and/or “Why is money important to you”? Everyone’s end goal will vary in some ways. Identifying these answers is a key to developing a sound financial plan.           

  1. How do I optimize my personal retirement savings?

The first thing I want to understand here is how much you need to save in order to get the right results for yourself. Then, you should determine the core outcome of the plan. Is it to benefit mostly you or your employees, partners, and yourself? Once we have that answer, we can look at your many choices – including pension plans that deliver a guaranteed income stream rather than create a tax-favored investment account. Some tax qualified plans you can consider are IRAs, Roth IRAs, SEP IRAs, Simple IRAs, or 401ks. For a more traditional pension plan, or where there is significant, predictable cash flow, a large savings need, and an opportunity to create a large tax deduction, we often implement Cash Balance plans.

As we start to laser in on which plan option, think about the current free cash flow of the business. Is it consistent or does it vary from year to year? Is it growing? The business structure can also be an important factor. Do you have multiple businesses and or business units with differing legal structures? These are all important factors when making the best decisions for your business.

  1. How do I develop benefits and savings plans for my employees?

Similar to the first question, who exactly do you need to benefit? Are you having trouble attracting and/or retaining critical people? Then, what are the demographics and geography of your workforce? There is, of course, the question of how much you can afford to spend on benefits, as well as your mindset. Do you favor a rich set of benefits, or do you prefer to provide the minimum? What I often see is that most businesses create a retirement plan first, then offer health insurance, and then layer on additional benefits based on their demographics. There are various options regarding purchasing and managing benefits, with more options and better pricing typically available for companies once they reach 50 or so employees. Most of our clients will utilize a benefits broker rather than procuring the benefits themselves. However, at a certain size and cashflow, you may want to consider a self-insurance arrangement.

  1. How and when do I develop an exit strategy?

The most successful exits, barring a fabulously successful startup, occur when the partner(s) start thinking about this 10 or so years before you think you might exit. We recommend that you involve your attorney, tax advisor, and financial advisor in the planning process. There is often a broker or investment banker involved, as well who knows both your business and market. Fundamentally, the earlier you start thinking about it, the better this process tends to work. In the end, you have many options, such as a sale/gift to a family member, slow wind down, sale to an outside entity, ESOP, or a sale to one or more key employees.  Typically, this is large component of your financial security/independence/family wealth plan, so a sound financial plan that determines what you need to take out, after taxes and transaction costs, is an important thing to have.

  1. What can I do minimize risks and protect my business?

When it comes to minimizing risk and protecting your business, you should have a plan in place for these key questions:

  • Who would run my business if I am unable to do so?
  • Can the business sustain my income and continue in operation without me?
  • Would my employees, especially the key ones, stay in place if I am no longer running the business?

Statistically, what happens most often is an illness or injury that either limits or eliminates your ability to work (source: Council of Disability Awareness). However, you should also give some thought as to what would happen to the business if you were to die too soon. You should have, as well, a disaster recovery plan related to your property, plant, equipment, and ongoing operations. We have all had excellent examples of this over the past year regarding forces outside of our control that might cause some type of shutdown.

What I see in the most secure clients is a combination of planning and insurance coverages. Every business should have property and casualty coverage as well as a documented, disaster recovery plan. As part of your plan, you should have in place a Buy/Sell Agreement with a partner and some type of disability coverage for you and your business, on yourself and/or on key employees. We can never eliminate risks. You do have the ability to mitigate many of them. I suspect most businesses, given the last year, will retain more cash reserves for a while, and cash reserves are always a good thing so long you maintain a sufficient level of business investment.

  1. How do I go about getting a liquidly event?

First, I like to understand what you need to take out of your business to accomplish your objective. After all, once you’ve won the game, if you like you can stop playing (and most people would be well-advised to take enough off the table to be able to stop playing, even if they are not quite ready to do so). Make sure you understand your market as well as the cycle of the market right now. Is there a lot of M and A right now? Why? Are sale prices high or low? Network in your market. You may find a potential partner or acquisitive enterprise. Get to know the brokers and investment bankers in your space so that they think of you when they see an opportunity. The most attractive candidates are well-run businesses, with growing cash flows, in a market that has longevity. I think a professional appraisal, executed periodically, is a good idea. Most business owners either under or (more often, in my opinion) over-value their business. It is, after all, your creation. The emotional attachment often gets in the way of objectivity.



The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. This information is not intended as authoritative guidance or tax or legal advice. You should consult with your attorney or tax advisor for guidance on your specific situation.