Tag Archive: retirement_planning

Managing the Emotional Toll of Selling Your Small Business

Managing the Emotional Toll of Selling Your Small BusinessManaging the Emotional Toll of Selling Your Small Business
Managing the Emotional Toll of Selling Your Small Business. 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. Managing the Emotional Toll of Selling Your Small Business

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. Managing the Emotional Toll of Selling Your Small Business

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. Managing the Emotional Toll of Selling Your Small Business

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. Managing the Emotional Toll of Selling Your Small Business

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. Managing the Emotional Toll of Selling Your Small Business

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. Managing the Emotional Toll of Selling Your Small Business

Revisiting Retirement Benefits: Is It Time to Sweeten Your Employees’ Plans?

Revisiting Retirement Benefits: Is It Time to Sweeten Your Employees’ Plans?By Sherron Lumley.

Whether a distant dream or just around the bend, retirement benefits hold significant sway with employees making decisions about where to work and for how long. In fact, a 2011 Mercer What’s Working survey of 30,000 workers found that, among American and Canadian employees, retirement plans placed second only to base pay among the most important employee value proposition elements.

Despite this emphasis, modern-day employees are notoriously poor at following through with retirement savings. Jack VanDerhei, research director of the Employee Benefit Research Institute (EBRI) in Washington D.C. notes, “Only 13 percent of workers now say they’re very confident about retirement,” an all-time low in 21 years of the institute’s Retirement Confidence Survey. What’s more, well over a quarter—29 percent—of workers surveyed said they have savings of less than $1,000.

Still, the expense and administrative burden often appear unaffordable to small business owners. Yet, these tangible costs should be weighed against the intangible benefits that drive employee satisfaction and performance. For example, Met Life’s 9th Annual Study of Employee Benefit Trends found a strong correlation between satisfaction with retirement benefits and job loyalty. In that survey, more than three out of four employees who were happy with their employer’s retirement plan also reported being satisfied with their job.

PQ_RetireBenefits.jpg“We provide medical and retirement benefits, though we are not obligated to, in order to attract and retain good employees,” explains Jodi Teti, small business owner of Blueprint LSAT Preparation, headquartered in Los Angeles, California. Small business owners like Teti say they recognize that to stay competitive and desirable, it’s time to revisit their employees’ retirement benefits. Below, three retirement specialists contribute their insights about the types of retirement benefits that are most desirable to small business employees today.

What employees want most: matching contributions, risk choices, and quick results

“Adequate investment choices and reasonable investment returns for an appropriate level of risk are important aspects employees want in their plans,” says Wes Rommerskirchen of Benefit Plans Plus, LLC, in St. Louis, Missouri. “Employees also look for a healthy employer contribution to assist them in reaching their retirement goals,” he says.

Peter Macaluso, Vice President of FM International Services in Melville, New York, concurs. When it comes to employee satisfaction and retirement benefits, he finds from his experience that “employer contributions affect employee satisfaction the most.”

What does this look like for a small business?

“Initially, we offered a scaled vesting period,” says Teti, whose company originally planned to match 100-percent of contributions for employees after six years of employment. “However, in today’s fluid employment environment, we found that employees simply weren’t contributing under that rubric,” she says.

To counter this trend, her company changed its policy so that employees could realize their benefits more quickly. “After an employee’s first year of employment, we match their retirement contribution up to three percent; we’re 100 percent vested after the initial year,” she says, adding, “the total number of contributions tripled since we instituted the new policy.”

Traditional 401(k) and profit sharing

With a 401(k) plan, employees contribute part of their pay into a plan sponsored by their employer. Many 401(k) plans provide for employer matching and profit sharing, which are employer contributions not taxed by the federal dovernment or by most state governments until distributed. The annual employer contribution is discretionary.

FM International offers its employees a three-percent profit-sharing contribution, which is what they recommend to their customers and clients. Profit sharing permits employers to make large contributions for employees, up to the lesser amount of 100 percent of compensation or $49,000. Employers can deduct amounts that do not exceed 25 percent of aggregate compensation for all participants. If offered, profit sharing must include all employees at least 21 years of age who worked at least 1,000 hours in a previous year.

Visit the Department of Labor’s website, Choosing a Retirement Solution for Your Small Business for more information.

Offer automatic enrollment and target-date funds

Recently hired participants in 401(k) plans, particularly those under 30, are more likely to want target-date funds (TDFs), according to an analysis by EBRI. TDFs are usually mutual funds that have a portfolio mix that becomes more conservative as retirement approaches. Small business owners should consider plans that offer TDFs for workers who want more control about the risk and return of their retirement investment portfolio. Risk-averse or conservative plans find a lower yield acceptable, whereas more risk is required when pursuing a higher yield.

The Pension Protection Act of 2006 contained provisions designed to encourage 401(k) plan sponsors to automatically enroll their workers in the plan to boost retirement savings and TDFs are often used as a default investment for workers who are auto-enrolled.

Adding a cash balance plan – the best of both worlds?

Although still quite popular in the public sector, the old-fashioned pension (or standard defined benefit) plan is out of reach for many small business owners and has been on the decline for three decades in the private sector, according to EBRI. However, cash balance plans are hybrid plans that combine some aspects of a traditional pension plan with those of a defined contribution plan (401(k)/profit sharing).

“Business owners that have the cash flows to support an additional employer contribution may want to consider installing a cash balance plan alongside their existing 401(k)/profit sharing plan,” says Rommerskirchen. “Using a cash balance plan in conjunction with their properly-designed 40(1)k/profit sharing plan could allow the business owner to contribute substantially more towards retirement than just a traditional 401(k) plan would allow,” he adds.

A cash balance plan defines the promised benefit in terms of a stated account balance, yet fluctuations in the value of the plan’s investments do not directly affect the benefit amounts promised to participants. Another advantage: Benefits of cash balance plans are protected by federal insurance provided through the Pension Benefit Guaranty Corporation.

Simplified Employee Pension (SEP), Payroll Deduction IRA or the simple IRA plan

Many small businesses that want to help their employees with retirement turn to Individual Retirement Accounts (IRAs), such as the Simplified Employee Pension (SEP). With a SEP, employers set up an Individual Retirement Account (IRA) for themselves and each employee, with the employer contributing the same percentage of pay for each employee, up to 25 percent of their salary (or $49,000, whichever is less).

The Simple IRA plan allows contributions by both the employer and the employee, whereas the Payroll Deduction IRA is funded by employee contributions without participation from the employer.

Providing retirement and investment education opportunities for employees

Year after year, employees surveyed by EBRI in the Retirement Confidence Survey continue to rank private employers as their most trusted institution, positioning small business owners in the role of guiding and providing for their own and their employees’ retirement savings.

“As far as sweetening the benefits, it is quite difficult for micro-companies and small businesses under 200 employees,” says Marcia Mantell, President of Mantell Retirement Consulting in Needham, Massachusetts. However, there are other things employers can do to help their employees prepare for retirement, she explains.

For companies who want to help their employees right now, but who aren’t yet ready financially to add employer contributions to a retirement plan, Mantell suggests creating non-monetary benefits for employees. Educational opportunities such as lunch-and-learn or hosted seminars about investing for retirement and retirement readiness, combined with in-house training for using online retirement preparation tools, will help employees gain a realistic view of retirement financial needs.

Don’t go it alone

“One of the most common areas overlooked in a retirement plan is the selection of an appropriate investment professional to advise the business owner,” says Rommerskirchen. With many small business owners wearing multiple hats, it’s difficult to stay on top of retirement benefit changes. Therefore it’s important to know exactly what services the financial advisor is going to provide for the plan, and how often you will meet with the financial advisor to review issues. You’ll also want to know how often the plan’s financial advisor will meet with your employees and how much experience he or she has, Rommerskirchenk recommends.

Revisiting Retirement Benefits: Is It Time to Sweeten Your Employees’ Plans?

The Pension Protection Act of 2006 contained provisions designed to encourage 401(k) plan sponsors to automatically enroll their workers in the plan to boost retirement savings and TDFs are often used as a default investment for workers who are auto-enrolled.

Adding a cash balance plan – the best of both worlds?

Although still quite popular in the public sector, the old-fashioned pension (or standard defined benefit) plan is out of reach for many small business owners and has been on the decline for three decades in the private sector, according to EBRI. However, cash balance plans are hybrid plans that combine some aspects of a traditional pension plan with those of a defined contribution plan (401(k)/profit sharing).

“Business owners that have the cash flows to support an additional employer contribution may want to consider installing a cash balance plan alongside their existing 401(k)/profit sharing plan,” says Rommerskirchen. “Using a cash balance plan in conjunction with their properly-designed 40(1)k/profit sharing plan could allow the business owner to contribute substantially more towards retirement than just a traditional 401(k) plan would allow,” he adds.

A cash balance plan defines the promised benefit in terms of a stated account balance, yet fluctuations in the value of the plan’s investments do not directly affect the benefit amounts promised to participants. Another advantage: Benefits of cash balance plans are protected by federal insurance provided through the Pension Benefit Guaranty Corporation.

Simplified Employee Pension (SEP), Payroll Deduction IRA or the simple IRA plan

Many small businesses that want to help their employees with retirement turn to Individual Retirement Accounts (IRAs), such as the Simplified Employee Pension (SEP). With a SEP, employers set up an Individual Retirement Account (IRA) for themselves and each employee, with the employer contributing the same percentage of pay for each employee, up to 25 percent of their salary (or $49,000, whichever is less).

The Simple IRA plan allows contributions by both the employer and the employee, whereas the Payroll Deduction IRA is funded by employee contributions without participation from the employer.

Providing retirement and investment education opportunities for employees

Year after year, employees surveyed by EBRI in the Retirement Confidence Survey continue to rank private employers as their most trusted institution, positioning small business owners in the role of guiding and providing for their own and their employees’ retirement savings.

“As far as sweetening the benefits, it is quite difficult for micro-companies and small businesses under 200 employees,” says Marcia Mantell, President of Mantell Retirement Consulting in Needham, Massachusetts. However, there are other things employers can do to help their employees prepare for retirement, she explains.

For companies who want to help their employees right now, but who aren’t yet ready financially to add employer contributions to a retirement plan, Mantell suggests creating non-monetary benefits for employees. Educational opportunities such as lunch-and-learn or hosted seminars about investing for retirement and retirement readiness, combined with in-house training for using online retirement preparation tools, will help employees gain a realistic view of retirement financial needs.

Don’t go it alone

“One of the most common areas overlooked in a retirement plan is the selection of an appropriate investment professional to advise the business owner,” says Rommerskirchen. With many small business owners wearing multiple hats, it’s difficult to stay on top of retirement benefit changes. Therefore it’s important to know exactly what services the financial advisor is going to provide for the plan, and how often you will meet with the financial advisor to review issues. You’ll also want to know how often the plan’s financial advisor will meet with your employees and how much experience he or she has, Rommerskirchenk recommends.

Think Big, Tax Small

What Small Business Can Learn from Big Business Tax Strategies.

by Jen Hickey.

If you’re a small business, chances are you don’t have access to a team of accountants and lawyers to find savings in the tax code. But as it turns out, you don’t need to. Almost every expense is tax deductible if you’re a small business. And recent legislation has dramatically increased the thresholds for certain deductions dramatically for tax years 2010 through 2012.
Pull-Quote.pngTravel and entertainment expenses

Small companies, like their bigger brethren, can write off travel and entertainment expenses. But further savings can be had if a small business adopts an efficient reimbursement method for such costs. Most if not all big businesses have an “accountable plan” for T&E reimbursement. As Barbara Weltman, tax and business attorney and author of J.K. Lasser’s Tax Deductions for Small Business, points out, “these reimbursements are not only deductible, but businesses do not have to include them in their payroll taxes” if they have an IRS compliant accountable plan in place.
Health benefits

Benefit plans are another area often overlooked by small businesses for tax savings. For example, during tax years 2010 through 2013, the Patient Protection and Affordable Care Act provides up to a 35 percent tax credit for businesses that have 25 or fewer full-time-equivalent employees and that cover at least half the cost of their employee’s health insurance. Yet a 2011 Kaiser Family Foundation survey found that only 29 percent of small firms had made an attempt to find out if they were eligible for this credit. And don’t forget that any remaining premium costs (or all of them if your small business doesn’t qualify for the ACA tax credit) can be deducted as a business expense.

Offering a health savings account (HSA) is another way small businesses can achieve tax savings and offset the medical costs of a high-deductible health plan. An HSA is a tax-exempt trust or custodial account set up by an employer to pay or reimburse qualified employee medical expenses; contributions are allowed annually up to set limits for self-only or family coverage. Flexible spending arrangements (FSAs) work similarly by reimbursing employees for eligible medical expenses up to the plan’s limit (capped at $2,500 annually starting in 2013). They are funded through voluntary employee salary reductions. Most notably, contributions to HSAs and FSAs are not subject to payroll taxes, and withdrawals for qualified medical expenses are tax free.
Retirement plan costs

According to the U.S. Department of Labor, 64 percent of all employees in medium- and large-sized firms are covered by an employment-based retirement plan, yet only 34 percent of small firms offer this benefit. Start-up and maintenance costs are often cited as a deterrent.

But small businesses can claim a 50-percent tax credit to help offset the “ordinary and necessary” costs of starting a SEP, SIMPLE, or qualified plan (including a 401k), up to a maximum of $500 per year for each of the first three years of the plan. Even better, this credit dates back to any plans implemented since 2002. As a result, any unclaimed retirement plan startup costs can be retroactively redeemed by amending previous returns going back to that tax year.

“By setting up a small pension fund, you can deduct contributions for employees and, if a sole proprietor, deduct contributions made for yourself,” explains Stephen L. Nelson, a CPA who publishes the website S Corporations Explained and is author of QuickBooks 2011 for Dummies. “Earnings on contributions are tax free until employees receive distributions from the plan. It’s an inexpensive way to encourage savings while lowering your tax rate.”
Debt writeoffs

While the economy may be on a gentle upswing, many small businesses are still recovering from the loss of customers and suppliers swallowed up by the recession. Just like big banks and insurance companies, though, a small business can write off bad debts if it uses the accrual method of accounting. This means the amount must have been previously included in income. And if a bad debt is recovered, accounts can be adjusted for the next tax year.
Company structure

Ultimately, the structure of one’s business will determine how it’s taxed. This begs the question: which structure is the most tax friendly? Well, that depends on the nature of your business and average earnings. “As a sole proprietor or partnership, you’re legally liable for all debts,” Nelson explains. “In addition to income taxes on business income, the owner also pays another tax on business profits through the self-employment tax.”

For some companies, transitioning to an LLC offers the most tax flexibility while limiting personal liability for owners. S corporations do not pay income taxes, as profits/losses are passed through to shareholders who report them on their individual income taxes.

Whether you’re just starting out or considering a change, Weltman recommends meeting with a lawyer to help determine the best structure for your business. And, as Nelson points out, such tax-planning decisions should be made at the start of the year for the next tax season.
Capital investments and capital gains

“If it has a business purpose, it can be deducted,” says Nelson. And more recently, legislation relating to Section 179 deductions, bonus depreciation, and capital gains taxes on certain small business stock sales has become more accommodating. As a result, more and more large corporations are taking advantage of this favorable tax climate to make large capital investments in their production equipment and rolling stock inventory.

“Keep in mind ‘ordinary’ and ‘necessary’ when gathering those receipts,” Nelson reiterates. Internet service, cell phones/smart devices, office furniture and computers, production equipment, software: all these types of investments are deductible and many can now be completely depreciated within their first year of service.

For small companies that generally struggle with limited cash flow, taking full advantage of all these tax strategies can return real dividends in the long run. And it proves that an entrepreneur need not have access to offshore tax shelters or a team of accounting wizards to achieve big tax savings.