Finding the Perfect Recipe for Success:

Financial Planning — and Other Major Decisions — for Small Business Owners

By Tisha Crews Keller and Linda Kleindienst

Few things loom larger in a small business owner’s agenda than a financial planning exercise. Here’s a quick test. Are you on top of these key financial components for your company: banking and investing, retirement plans, insurance, succession planning and general financial health? Unfortunately, most of us procrastinate any real strategizing until we are forced to do so.

Sure, while planning a startup, entrepreneurs line-item basic costs and strategies to cover them. But rarely does the planning ever — even years into a mature business — develop into a comprehensive package that will protect a business come feast or famine. The sad truth is, as a business owner, you’re more likely to be occupied with generating sales leads and developing new products than planning for Scenarios A through C.

Things can go wrong quickly in small business, but problems may be overlooked until the damage is done.

“Business owners are entrepreneurs,” points out Ron Moliterno, Division president for BancorpSouth in Destin. “More often than not, they get into a business because they know how to make something or sell something. It’s unusual to see their talent lie in planning or finance.”

What’s more, he adds, business owners will find someone to help them make a product or someone to sell that product, but rarely do they plan and understand the financial end of the business.

“Often, CPAs are too costly and the companies are too small to hire a full-time CFO,” he explains. “These tasks are usually assigned to (sometimes inexperienced) office staff or done as time allows by the owner.”

Moliterno says the danger with this approach is that accounting systems such as Peachtree or QuickBooks are used — and they appear adequate — but the product is only as good as the input. This can result in problems such as lack of quality information (a necessary management tool), inability to adequately measure performance and stale, dated or confusing information.

Financial industry sources such as Bankrate.com offer suggestions for savvy small business owners. The short list is basic and simple, but should not be overlooked: cash flow analysis, feedback from customers (and employees!), industry benchmarks, timelines and financial ratios customized for your company.

Between them, these tools offer valuable data to help you assess where you are now, where you are going and how long before (or even if) you get there.

Planning for Now and Later

Many business owners don’t plan past operating expenses — what they need now for the things they can see. But sound financial planning needs to extend beyond the known, into the realm of “what if.”

According to Shane O’Dell, financial advisor with The McGovern Group, Merrill Lynch in Fort Walton Beach, some of the most common financial planning pitfalls business owners experience are, “A lack of execution of the business plan, not having enough liquidity … and not properly planning for all the economic and legislative uncertainty.”

This “uncertainty” extends to economic factors and even regulatory and taxing changes, such as healthcare mandates and other programs.

If an owner wants to retire, the primary goal should be to have a plan well in advance of their last day of work — and to methodically work according to that plan.

“Wealth management is about taking action now to create the future you envision,” says O’Dell. “For this reason, business owners need to consider when they can retire, how much money they will need to save, how they will manage retirement cash flow, how much money they can realistically spend while retired and how much risk they can afford to assume, based upon these goals.”

One consistent theme in financial planning advice is that “cash is king.” Properly understanding and managing cash flow and liquidity is one of the most common pitfalls of small business ownership.

“A business generally struggles or fails because it does not properly plan and project cash flow needs and expectations,” explains Mike Freeman, chief financial officer of Acentria in Destin. “Obligations are paid from cash, not profits. A business might be able to show a profit on paper, but it may not have planned properly for the differentials of cash flow throughout the year.”

For example, a business with inflows of $25,000 in a given month will count that as profit. But if the utilities, lease payment, materials, payroll, insurance and other expenses total $25,000, then there is no profit there. Learning how to plan for the varying tides of commerce is one part education and two parts experience.

Terri Jackson, a CPA with Jackson Financial Services in Tallahassee, says knowing this information too late — or not at all — can be the beginning of the end. Businesses need to continually adjust their planning as market conditions change.

“Being too slow to respond to trends can cause a slow decline and the eventual demise of a business,” she says.

Unfortunately, many people don’t get help until they are in trouble — and for many it’s too late.

According to Jackson, the amount of cash a business needs to have on hand varies by the industry and company. For example, a company that collects receivables in 30 days needs less cash than ones that have to wait 90 days. Add to this the variable of short-term lines of credit. If you have access to them, then you might need less cash in the bank. But all companies need to plan for seasonal adjustments, she says.

“If you know your business slows down dramatically for several months out of the year, you need to keep enough cash and lines of credit available to stay in business until it picks up,” Jackson explains.

Having enough cash on hand to weather a problem is critical, experts agree. But many businesses don’t have any cushion at all.

“For a small retailer with less than five employees, three to six months of operating expenses in reserve can be sufficient,” explains Stephen Cutright, a Tallahassee CPA. “For medium-sized businesses with 10 to 15 employees, they need to have at least 12 months worth of expenses in the bank.”

Many Northwest Florida businesses believe that if they weathered recent hurricanes, economic downturns and oil spills, they are strong enough to survive. And, in large part, that’s true. But beware of risks that aren’t always on the radar, says Cutright.

“Business owners tend to forget about sometimes rare but nonetheless unavoidable expenses, such as fluctuations in the economy, equipment expense and repair, key employee loss and rise in commodity prices,” he says. “Most of the businesses that survived the past few years had low debt and high reserves.”

In fact, losing key employees or those with great efficiencies and knowledge can be one of the most challenging problems for a small business.

“Staffing is the quickest solution for trimming expenses, and for most businesses, that’s the most expensive budget item,” Cutright says. “But staff turnover is one of the most expensive things a business can go through.”

When you factor in training, expertise, tacit knowledge, team dynamics and other intangibles, employee changes can bring your once-thriving company to a grinding halt. And your customers are very likely to notice.

Finding a Banking Partner

When it comes to banks, there are plenty out there waiting for your business to come knocking. The key thing to remember is that one size does not fit all. In other words, look for a bank that wants to sit down with you and work out the best plan for your company. And remember that a bank should be there to make your life as a business owner easier. Whoever you choose should be supportive — and reliable.

“A lot of people think of banks as only a loan source, but they need to look at a variety of services,” says Skip Smith, senior vice president of business banking at Capital City Bank. “This is really a relationship business. All businesses are unique. There is the world of packaged banking services, but all businesses don’t fall neatly into the same box.”

Many new business owners have never had much interaction with a bank, so it’s important for them to find a good financial partner, adds John Medina, president of Six Pillars Financial Advisors, a financial advisory and investment firm that is a wholly-owned subsidiary of Florida Commerce Credit Union.

“What we’re trying to do is provide holistic or comprehensive financial planning for small
business,” he explains. “We’re involved in long term relations with long term goals.”

Banks offer a variety of services that are important to a business. There is the obligatory business checking account — check to see if the bank will offer you an incentive to keep a certain amount in your account and be certain to ask about fees — and there are online banking resources and electronic systems that allow you to make deposits without even going to the bank. Banks can offer you loans, a financial analysis of your company and sometimes even an overview of your industry.

Debt management and cash flow management are important issues for businesses to discuss with a professional banker.

“One of the first things they need to do is figure out what they’re going to get out of (the business),” coaches Medina. “They have no idea how they’re going to sell or when they’re going to sell. We work with clients to make sure they understand this is their retirement and they need to treat it as such.”

Before you go looking for a bank, it’s best to do some of your own research. With the Internet, it’s easier than ever.

“The information is more readily available now than ever before,” says Smith. “There’s financial analysis and information that’s a good idea for someone to look through before they go in search of a bank.”

Slicing it Right

Knowing what percentage of savings, investments, leverage, etc., to hold can be a daunting challenge. And it changes according to your industry, too. This is where comparison with others in the same arena is critical.

Experts call it “benchmarking” and all of them say it’s an absolute necessity. Business owners and managers need to have a great relationship with their financial reports. In fact, many CPAs don’t see how you can stay in business long without this key information.

“Your financial statement is a picture of your company’s financial health,” says Cutright. “There’s so much information there, but many people don’t read it.”

The balance sheet shows your assets and liabilities, but it’s only a snapshot in time, he explains. The P&L (profit and loss statement) is your ins versus outs for a given amount of time, but this can be even more dramatically instructive if you compare these numbers against something else.

“The key thing is comparing your report numbers to another figure — your budget expectations, past years or industry benchmarks, which is what other companies are spending in these categories,” Cutright says.

It’s important to study your specific industry and not just the overall economy when making financial decisions. Actual percentages for budgets vary greatly by industry, so you must benchmark by industry and geographic region, if you can.

Talk with friendly competitors, your CPA, trade associations, local economic agencies and others to gauge how well your company is doing when compared to others in the same field. This information is not only useful, it’s critical for decision making and planning.

No matter what, when planning your budget and expenditures, don’t ever forget innovation and determination.

“Adaptation and perseverance are the two qualities that are essential to navigating a difficult  economy,” says Freeman. “Adaptation pertains to your willingness to consider new approaches to your business model. Perseverance is related to hard work and hard choices. Unfortunately, painful decisions might need to be made in order for your business to survive.”

The Light at the
End of the Tunnel

If you’re in business, what’s your exit strategy for getting out of business? Many small business owners plan to sell their company in order to retire.

“Sure, they might invest in various retirement vehicles … but they understand that the greatest return is generally the sale of their business,” Freeman explains. “If that’s their plan, they need to get professional guidance as it relates to the marketability of their business to prospective buyers and a potential return on a successful sale.”

A typical retirement plan for a small business owner, he says, is the equity and value accumulated within their business.

“However, most [owners] overestimate the value of their business,” Jackson points out. Because of this, she encourages them to personally take advantage of the various retirement accounts available to them such as 401(k), SEP and Simple IRAs.

Planning to sell a business is something you should take as seriously as you did starting one.

“Owners can increase the value of their business they plan to transition or sell through good recordkeeping and budgeting — buyers do get skeptical — and by maximizing profits and lowering expenses,” outlines Cutright. “Debt raises risk and lowers equity.”

And your business is only worth its profit, Cutright says. That’s why small businesses almost always ultimately sell just assets.

Cutright suggests a good marketing campaign is essential to sell your business, and that’s usually done through a broker.

“Suppliers, competitors, or even employees can be your best buyers,” Cutright points out.

O’Dell at Merrill Lynch specializes in designing exit strategies for business owners.

“We assist business owners in planning an exit strategy in the most efficient manner possible,” he explains.

That always means having a plan well in advance of their last day of work. According to O’Dell, business owners should consider many things when deciding when and how to retire, such as:

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When can you retire? How much money do you have and how much will you need?

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How much money can you save?

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How will you manage your cash flow during retirement?

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How much will you be able to spend to maintain your current lifestyle?

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How much risk can you afford to assume, based upon your goals?

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Do you want to create a personal legacy through wealth transfer or philanthropy?

Opportunity
for Growth

If you aren’t yet at the exit strategy stage, then you’re likely still in growth mode. Startups looking to expand have different needs and methods than do mature companies looking to grow. And, surprisingly, many companies have seized the opportunity during the past few years.

“Actually, difficult economic times can present opportunities for mature businesses with capital,” Freeman points out. “If you think about it, a mature business is generally going to have access to capital — and likely cheap capital — and it will have a mature infrastructure allowing for expansion.”

But Freeman cautions that a mature business needs to understand the relationship between leverage and profitability when expanding. At any stage, a general rule of thumb is to have cash and other short-term assets available to satisfy obligations as 2:1. This is commonly called a Current Ratio in the financial world.

Like new businesses, things can get dicey rather quickly when an established company expands. Be careful about taking on more debt than you can support, warns Jackson.

“That debt can quickly snowball if they’re not careful,” she adds.

Moliterno has also seen his share of expansion woes.

“I have seen companies grow themselves right out of business,” he says. “They lose sight of costs, processes, capital and diversification.”

Additionally, he says businesses should strive to limit any one customer to no more than 10% of total sales, which places them in a very vulnerable position. Having a one-dimensional goal of growth is dangerous for any company.

Retirement Planning

In today’s marketplace, keeping good talent depends upon having a solid retirement savings opportunity and providing tax shelters for employees, among other things.

The priorities for most small business owners include managing taxes, rewarding employees and planning for the (financial) future. These goals not only protect the business owner, but they provide for long-term investments in people and the business as a whole.

The good news is, a comprehensive retirement plan accomplishes all of these things at once.

The IRS notes that Americans will need 70-90 percent of their preretirement income to maintain the current standard of living when they stop working. And, as an employer, you have an important role to play in helping your workers (and yourself) save.

Retirement plans can have significant tax advantages, such as contribution deductions from employer income; pre-tax employee deductions lower your overall employee tax rate; and money in these plans grows tax-free.

The government provides many incentives for setting up retirement plans in small businesses. For instance, “catch-up” rules allow employees (and owners) age 50 and older to set aside additional contributions for retirement. The “Saver’s Credit” allows tax credit for certain low and moderate-income individuals (including the self-employed) who make contributions to their plans. Finally, the ordinary and necessary costs of setting up a retirement plan for your business can be used as a tax credit for small employers. In addition, up to $500 per year for the first three years of the plan may be credited back to the business.

Many financial professionals warn against depending completely on the sale of your business for your retirement income. Because so many variables can affect the value of your business, shrewd owners put aside money in their own retirement accounts for their golden days.

There are three main categories of retirement plans available to small business owners. Of course, you’ll want to consult a financial professional to help choose the plan that’s right for your business. Most small businesses use Individual Retirement Accounts (IRAs), defined contribution (DC) plans, or defined benefit plans (also known as traditional pension plans).

The options for small business retirement include:

Payroll Deduction IRAs.

Even if an employer doesn’t want to create a formal retirement plan, it can allow employees to contribute to an IRA through payroll deductions.

Simplified Employee Pensions (SEPs).

A SEP allows employers to set up a type of IRA or themselves and each employee. Employers must contribute a uniform percentage of pay for each employee, even though they don’t have to make contributions every year.

SIMPLE IRA Plans.

This option is for employers with fewer than 100 employees. It is a type of IRA allowing employees to contribute a percentage of their salary and requires employer contributions as either a match of up to 3 percent or a fixed contribution of 2 percent of compensation for all eligible employees.

401(k) Plans.

These have become extremely popular for small businesses. Employees can choose to defer a portion of their salary. Employer contributions and pretax deferrals are not taxed by the Federal Government or by most state governments until distributed.

Safe Harbor 401(k) Plans.

These plans encourage participation and savings among rank-and-file employees and require employer contribution.

Profit Sharing Plans.

Employer contributions to profit sharing plans can be discretionary. Usually, there is no set amount that you need to contribute each year.

Defined Benefit Plans.

Some businesses like the advantages of the traditional pension plan. For instance, employees often prefer this type of retirement plan to others available.

When looking at options for your business, consider your company’s size, financial situation, number of employees and how well you will be able to comply with oversight and administrative responsibilities. These vary with each type of plan.

It’s also important to be able to protect your plan from creditors and to limit your own financial responsibility to the plan. While retirement planning is a near requirement in today’s workplace — most employees demand it — you must also be able to afford to adequately fund the rest of your business.

Keep in mind, though, that most small businesses believe that a good, solid retirement plan is key to keeping talent and providing their own piece of mind for the future.

Commercial Insurance

Many small business owners think of insurance as yet another bill on the desk every month, money paid into the ether for scenarios that will likely never happen.

And some do get by with that belief. Still, others have a game-changing experience like this one:

A real estate company did not have a crime policy in place for its business. This would have required company owners to make sure the person who issues checks does not sign them, among other things. While simple, these process changes were too much of a burden on the business owner — and the premium probably wasn’t something he wanted to pay, either. The business had a $10,000 limit built in to its Business Owners Policy (BOP), which includes general liability and property damage. One day it was discovered that a computer hacker had copied keystrokes on the computer and gained access to the company’s bank password information. The hacker was able to transfer $80,000 from the business account before it was caught. Because of the limits to their BOP, they were reimbursed at only $10,000.

For commercial insurance agent Maria Hendrickson, this is not an unusual scenario.

“Business owners don’t always educate themselves on what’s available and what could happen,” she says. “They are often penny wise and pound foolish.”

Hendrickson, principle of Hendrickson Insurance Services, Inc., in Tallahassee, has seen over and over again how one quick decision at budget time can have major repercussions on a business’ bottom line.

Many business owners think they can put off investing in insurance coverage because they are small, or they are a start-up. Not so, says the industry.

“The needs of a start-up are not that different from a business that’s existed for several years if the exposures to loss are similar,” says Steven Barone, Sr., president and managing principal at Whitney Insurance Agency in Destin. “For example, two restaurants, one just opened and one has existed for 10 years. Both serve lunch and dinner and alcohol. Both have 10 or more employees. Both have cash exposures. So, both need Property, Liability, Worker’s Comp, EPLI, etc.”

Insurance experts agree that there are a few types of insurance coverage that every business needs, regardless of size, age, or industry.

For example, General Liability coverage is something nearly all businesses need before the door opens. This policy covers negligence and liability, including bodily injury and property damage. Commercial Property Insurance and Business Income Insurance are also needed. The latter pays your key employees and expenses if your business can’t function due to fire, natural disasters, etc.

A coverage everyone is familiar with is Worker’s Compensation. However, not every company has a policy. Sure, if you are in the construction industry or have more than four employees, you must have coverage. But agents like to remind business owners that even if you’re not required to have WC coverage, you still should.

“Business owners need to realize that even if they don’t have Worker’s Comp insurance, they still have to pay if an employee is injured on the job, regardless of the company size or industry,” warns Hendrickson.

Both Hendrickson and Barone say Employment Practice Liability Insurance (EPLI) is vastly overlooked. EPLI covers the business for hiring discrimination, employee harassment and negative hiring/firing practices. If you have employees, both suggest you invest in this tool.

Other more common forms of insurance include:

Errors and Omissions (EO): covers your professional mistakes and is especially important for insurance agents, attorneys, CPAs.

Directors and Officers: you should have this if your company has a board or if you’re serving on another company’s board.

Commercial Auto: auto insurance for commercial vehicles.

Commercial Umbrella: a blanket policy that includes liability over and above the rest of your coverage, in case those limits
are reached.

Uninsured Motorist: this very important coverage is critical for many businesses — those that purchase minimal limit of UM coverage can be hit hard when injuries are sustained in an accident.

Inland Marine: this coverage insures construction equipment, delivery contents, and more.

Protective Safeguards Endorsement: if your alarm or sprinkler system isn’t activated or working, you may not have a viable claim during a fire or burglary. This endorsement protects you regardless.

While it’s clear a business could go broke with insurance premiums, it’s important to figure out the amount and the products that will protect your business should the need arise. To determine the amount of coverage you need, consider what you do and your financial statements.

“I look at a business and what they do,” Hendrickson says. “Then I look at the gross revenue, the property value and the payroll to determine what they need as a baseline.”

These calculations help determine your general liability, property and Worker’s Comp insurance. Regardless of your industry, these are your baseline. And your agent will want you to consider ELPI and EBL (Employee Benefits Liability) as well.

As for whether start-ups will want different coverage than mature companies, that’s a reality.

“It is different in that mature businesses will need the coverage of a start-up,” says Barone. “But they also need additional lines of insurance coverage added as the business grows.”

Keep that in mind as you build-out a new lease space, you add a delivery service, hire a new type of consultant, or expand your seating and acquire a new liquor license. Every new possibility also comes with increased risk. Ask yourself if your business is still covered for the possibility (or eventuality?) of a claim.

Financial Planning

Bankrate.com’s Toolkit for Success

The savvy small business owner has five basic types of tools:

Timelines — Write down on your calendar dates and deadlines for important milestones, including numbers, dollars and dates when things should be completed.

Ratios — You have a wealth of information in your ledgers and balance sheets. Stack them against each other to measure your success.

Cash flow, profit and loss statements — These give you a snapshot of where your business is right now. Ideally, you should check these monthly at minimum, although many people suggest weekly or even daily check-ups.

Customer feedback — Just because you’re not hearing a complaint doesn’t mean everything is ok. Learn about yourself and your competitors through regular opinion-checking with your customers.

Employee feedback — Don’t forget about your most valuable asset. Employees notice things you might overlook. What’s more, an unheard employee is rarely a satisfied one.

From Bankrate.com.

Benchmarking
Your Business

To compare your business with others in your industry, try these sources from Bankrate.com.

Published profit ratios:

• Industry Norms and Key Business Ratios — Financial ratios of 800 different industries. Dun’s Analytical Services, Murray Hill, N.J.

• Analyst’s Handbook — Statistics and ratios for industries in the S&P 500 Standard & Poor’s Corp., N.Y.

• Almanac of Business and Industrial Financial Ratios — Recent figures about an industry’s performance, using IRS data. Leo Troy, Prentis Hall, Englewood Cliffs, N.J.

• US Industry and Trade Outlook — Evaluations and projections of major segments of the economy. Standard & Poor’s, U.S. Department of Commerce, DRI/McGraw-Hill, N.Y.

Electronic resources:

• TechSavvy.com — Searchable database; free subscription

• Bureau of Labor Statistics — Government statistics and reports

• US Census Bureau — Data on agriculture, manufacturing, construction, retail, wholesale goods From Bankrate.com.

Budget and benchmark. For a small business to be successful there needs to be a financial roadmap and checkpoints along the way. That means having a budget and comparisons to measure performance against industry standards and performance goals of the business itself.

Understand your financial statements. Many small business owners don’t fully understand their financial statements or read them on a regular basis. These provide a wealth of information on the financial health of a business.

Debt = risk. Don’t underestimate the risk associated with debt. Be willing to grow your business more slowly using cash from profits to minimize risk and build financial stability for long-term sustained growth.

Allow time to work on the business, not just in it. Owners of small businesses often see their time consumed by everyday tasks to keep the business running. They don’t spend adequate time monitoring and planning for financial growth and the health of the business. Allow time for updating business plans, reviewing budget and benchmark reports and meeting with key partners, employees and advisors responsible for implementing those plans.

Plan for profit. A successful business not only compensates the owners for the work they perform in the business but provides a profit above the salary of the owner. Small business owners often think that if the business pays them a salary, all is well. But it is a profitable business that has value, so when budgeting, plan to have a profit above owner compensation.

Build a reserve. Solid business financial planning includes setting aside some profits in an “emergency fund” so that unexpected expenses don’t cause a crisis in cash flow. Having a cash reserve in a business is just as important as having one at home — to keep a short-term problem from derailing long-term plans.

Have a good team. It is important to have a good team in place to develop, monitor and grow a business financially. That team includes your business partners, employees and professionals. Reward employees so that if they help make the business successful they participate in the profits, as well.

— Stephen Cutright, CPA

Preparing for your (untimely)  departure makes good business sense

When Dr. Joel Shugar tragically died in a skydiving accident, he left not only grieving relatives, friends and patients; he also left the eye surgery institute he founded without its leader. Other medical professionals stepped in to carry on the work, but Shugar’s death illustrated the vulnerability of almost any business.

What do you do when the senior executive (and often the founder) suddenly dies or is no longer able to function as the leader or simply wants to step down? What kind of succession plan will allow the business to carry on?

A business succession plan develops from a process, often involving a series of tough decisions, legal documents, insurance policies or investments. In it a business owner arranges for the transfer of the two most important aspects of a business: power and assets. The primary benefits are to maximize efficiency and profit during a transition of management, and to protect the business in the case of the owner’s death or disability.

Changing of the Guard

No matter who takes over a business, establishing a plan of succession allows for a more seamless transition when the time comes for a changing of the guard. A structured transition provides ample opportunity for the business to address future goals under new leadership, as well as for the successor to learn the nuances of the business, build relationships with existing customers and suppliers, and gradually grow into the role of management.

Sell Strategy

Rather than passing a business along to family, many business owners decide to sell their business either to a competitor or other outsider, or through public stock offerings or employee stock ownership plans. A succession plan is an excellent vehicle for business owners to arrange a sale, and even guarantee themselves a source of income after retirement. For example, numerous business succession plans provide the business owner a position as CEO or on the board of directors, away from the everyday grind, while still reaping the benefits of a positive cash flow.

A succession plan will put the business owner’s wishes on paper and put them in motion, turning the transfer or sale of a business into a series of events, instead of a scramble to figure out the next step. Remember, selling or transferring
control of your business is not something that can be successfully accomplished overnight.

Handing It Down

You are not immortal. What better way to leave your legacy than through your business? It is critical that you protect your business and your family in the event of your untimely death or incapacitation. The fact is, a business is often the largest part of its owner’s estate. If the owner dies, estate taxes can eat a large portion of that estate. This situation, in turn, can force the business, including the owner’s family and partners, to take on substantial loans, or even worse, liquidate, just to pay the taxes and make ends meet.

Your business succession plan can serve as a means to protect both the assets of the business and the income generated by it, often by setting up life and disability insurance on the owner, or by using other investments such as annuities. These instruments can provide the capital to pay taxes, service debts and see the business through the difficult times associated with any sudden change in structure. Your financial advisor can help you create a plan that fits your needs.

Plan Early, Plan Well

Succession plans can offer tangible advantages to new businesses. Businesses with succession plans generally have an easier time obtaining credit from lenders. Also, having a succession plan could inspire your lender to provide you with the option of foregoing the expense of key-person life insurance, i.e., life insurance on the business owner, should you need the extra funds in these cash-strapped times.

So where do you start? Get organized. Decide what you want to accomplish with your business. Arrange a meeting with your financial advisor to discuss your goals. Your financial adviser will probably recommend that you also contact your attorney, accountant or insurance agent. The most important point is that the issues should be worked out in anticipation of the change, not in reaction to it.

The biggest step in forming a succession plan is getting organized, and many people find that the organization required in formulating a succession plan makes their business stronger by forcing them to set goals and stick to them. The basic goals of a business succession plan are not all that different from the goals of a will, and the similar peace of mind it brings is well worth your time.

You do have a will, don’t you?

— Paul Norman