Wellness plans are all the rage for keeping employees healthy. But your business needs its own kind of wellness plan to keep it fiscally fit. After all, you have too much riding on its longevity to let it get out of shape.
A proper business protection strategy could help you both now and down the road. Here are some important strategies to help protect the future of your business — and keep it out of the intensive care unit.
Maintain Fiscal Discipline
You may want to pace yourself with respect to taking money out of the business. Although your immediate personal financial needs may seem paramount, it's important to build a healthy company balance sheet.
High debt levels and the lack of a cash cushion could put your business in danger should you enter a rough patch. And a weak balance sheet could force you to make drastic expense reductions, such as personnel cuts, that could hamper your ability to bounce back when business picks up. Make retained earnings your friend.
Separate Business From Pleasure
A sound business protection strategy may require keeping a clear boundary between your personal finances and those of your company. It may be tempting to push the envelope by charging quasi-personal expenses to the company. However, not only do you run the risk of incurring tax penalties, but you make it harder to get a true picture of how your company is performing.
The cleaner your books, the better you can see your current financial situation — and, if necessary, take corrective action. Keeping personal and business finances disentangled could also make it easier to get an accurate independent business valuation, which may be helpful to you in your strategic planning.
When you start and build your own business, it's easy to think of yourself as indispensable and thus keep a tight grip on the reins of control. That could be short-sighted, however. For one thing, it could limit your business's ability to grow.
When you identify one or more key employees who could assume greater responsibility — and begin grooming them toward that goal — three things happen:
- You free yourself up to think more strategically when you delegate more operational responsibility to others.
- If key employees are given plenty of professional growth opportunities, they may be less inclined to look for a job elsewhere.
- Your business could have more value to prospective buyers, who will know it won't come to a grinding halt if you retire immediately after you sell.
Key Employee Insurance
Key employee insurance is life insurance purchased by the company to cover the lives of key employees. Initially, that might be just you. If you were to pass away while you're still running your business, the enterprise would probably need a shot of liquidity to pull through during the period of transition that would follow.
It would likely take months for a new leader to be installed at the helm — albeit less so if you've done a good job with succession planning. The cash infusion from a key employee policy's death benefit could mean the difference between leaving your beneficiaries a valuable business or one that crumbles. Remember, key employee insurance policies are owned by the company, and the death benefit proceeds go to the company tax-free. Premiums are typically not tax-deductible, however.
You may have flexibility in how key employee insurance policies are structured. For example, some policies will allow you to change the person who is being insured. That feature could be very helpful if the insured key person is a senior executive who leaves the company — you can then change the policy to cover their replacement. Similarly, you might decide to shift from covering your own life to that of your heir apparent if your role in running the business has diminished.
Other forms of protection, such as property and casualty insurance, are also vital. But they tend to be the first business protection tool business owners think of, even as they overlook the four tactics referenced above. Instead, you may want to sit down and consider these lesser-known strategies to keep your business fiscally fit. Consider speaking with a financial representative who could help you evaluate your options and decide on the right strategies for your needs.