Take advantage of the benefits of business ownership - Puget Sound Business Journal (Seattle):

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That creates a paradox. Despitre the fact that the client wants to someday maximizew the value ofthis asset, most business ownera and entrepreneurs never take advantage of all of the benefitx that business ownership can provide. • Retirement plannin g — The Employee Retirement Securithy Act of 1974 set minimum standards for qualifiedretirement plans. In many this law can result in reverswdiscrimination — a situationn in which lower-paid employees can save a greater percentage of thei r income than higher-paid employees or owners. For the maximum amount of contributions to a plan in 2009is $16,500 ($21,500 if a person is over 50).
This meanx that an employee earning $50,000 can save 33 percenft of income, whereas an employee or ownef earning $500,000 is eligible to contribute only a little more than 3 percenof income. This results in discriminationb because the highly compensatedindividual won’t be able to replacr the same percentage of income at In order to compensate for these owners often will adopt a nonqualifierd executive benefit plan to allow owners and key employeeds the opportunity to defer additional money for There are several variations of nonqualified plans, and they can be designec to allow employer contributions, employee deferrals or both.
It’s important to note that there are restrictions arounddeferring compensation, most of whic h are governed under IRC 409A. • Disabilityy protection — Most business owners offer some short- and long-termj disability insurance as a fringe benefit totheird employees. These benefits typically pay a replacement ratiko of approximately 60 percentof income, to a maximum of $10,000 to $15,000 a However, these benefits also often result in providing a lower incomed replacement ratio for key employees or owners.
Assuming a $15,00 0 cap, an employee earning $500,000 would replac e just 36 percent oftheir It’s possible to solve this shortfall by carving out the owners and key executives, and providr additional disability benefits. • Life insurance protectionb — Business owners often face the same limitationsd with life insurance benefits as they do with theid retirement anddisability plans. Again, it’s possible to constructg a separate plan for ownerxs orkey employees, using either term or permanent life insurancs contracts. Life insurance contracts that accumulate cash values oftenm are used in combination with some of the retiremen tplan solutions.
• Continuation planningf — At some point, all business ownerd physically can’t, or won’t, want to continue to work in theidr business. Whether this is caused by the desiresto retire, a disability or a death, there are severakl important questions to consider. (1) Who will buy or take over the businese at deathor retirement? (2) How will the sale be financed?? (3) How much value will be received by the businessd owner and/or their family? (4) Who will managw the business in the event of a disability ? (5) Where will the liquidity come from to keep the businessd running in the event of a disability?
(6) If any or all of theses issues have been addressed, are the solutions documented It’s advisable for all business ownere to have a writtenm business continuation plan to address all of thess realities. The best advice for anyone engagingf in a new venture is to know the rules of the know what the financialstakes are, and know what the exit plan is if thingsx don’t work out. This will ensure that there will be a minimaol number of surprises for the the familyand employees. These are importang considerations in all stages of and these solutions can be scaled and revised as the businesz growsand prospers.
Business owners have a tendency to throw everything back into theit businessbecause it’s often the best return on their but many do so without ever diversifying or taking any chips off the table. These are simple strategiee to help manage risk during the questfor