Why Use Non-Compete Agreements!

Non-compete agreements (NCA) represent a separate agreement. They could be in an employment contract, or as a separate article in a buy and sell agreement. Sometimes they are referred to as Covenants not to complete. “

This is based on the possibility that an employee can do harm to a company upon termination.  They could know sensitive information about the company’s operation, owners and employee’s personal information, special operations, and proprietary information to a competing advantage, along with so much more.

Picture a very long-term employee working side by side with the owners, for many years, and then leaving to work for the owner’s competitor.  Certainly, there can be issues.

No compete agreements (NCA), can be used to retain employees also.   It would be very difficult to change jobs within an industry or profession when the leaving employee is limited to compete in a geographic and specific industry for a period of time.  However, non-compete agreements are hard to enforce, because in many instances the agreement has overreached and is very broad in the definition of industry and geographic coverage.

Continue reading “Why Use Non-Compete Agreements!”

Why Should A Small Business Owner Do Business And Estate Planning?

Why should you as a business owner do estate and business planning?

At your death or long-term disability, would your spouse know:

  • How to contact your vendors to explain the situation and negotiate better financial terms
  • Know who your banker is?
  • Know what the passwords to your computer?
  • Be able to assure your employees the company will continue and be alright?
  • Be able to pay off the personal note that you signed for the business and is being called in because of your situation?
  • Know where the life insurance policies are if any?
  • Have any idea if you have a buy and sell agreement with a partner and what are the terms of the agreement?
  • Be aware that she may be running a business illegally if she was not authorized to do so?
  • Know who your estate attorney is, if you have one?

There are many more of these questions, but they are only a few of the reasons why a small business owner should do estate planning.

According to the Small Business Administration, about 90% of all US businesses are family-owned or controlled.  Approximately 70% of these businesses will not pass successfully to the second generation, 85% won’t make it successfully to the third generation and less than 5% pass to the fourth generation.

Another reason for estate planning!

At your death!  Will the business be a fire sale?  Your competition is waiting to purchase your assets for pennies on the dollar.  They also know your estate will need to raise cash quickly.    Your business will become a “fire sale”without planning.

Another good reason for business and estate planning!

If you have a borrowed money from the bank, you signed for it personally.   Your estate and you family are responsible for that payment.  Plus, there is a great chance the bank will hold off on any future loaning for your company.

Another good reason for business and estate planning!

If you have a partner, will they want to be in business with your spouse?  Will your spouse want to be in business with them?  If your spouse is a minority stockholder, or minority business partner, he or she may not be receiving fair treatment like you did.  You had a skill that contributed to the business, your spouse may not.

Another good reason for business and estate planning!

 By not planning your estate and business, you are possibly losing the greatest potential value of your business for your family and for your retirement.

 

Of course, there are many more reasons for a business owner to do comprehensive estate and business planning, but the above listed is enough to motivate the mature business owner to get their affairs in order and continually update them. 

 

 

The Major Reason Why Business Owners Don’t Plan For Maximizing Their Business’ Financial Potential Is Now Eliminated!

Many business owners spend the majority of their time running their businesses and inadvertently end up neglecting some of the more important aspects of their business. This is the time where all the details of the success of your business are planned. We call this “working ON your business”.

Business owners can be vulnerable to financial mistakes because of many factors.

One of the key details of a business owner is what happens to their business in the following scenarios:

  1. What happens if I die?
  2. What happens if I become ill, or have a long-term disability?
  3. What happens if I lost my key person, or my key group of employees?
  4. What happens if I can’t control cash flow, or just don’t want to run the business any longer?

Unfortunately, many business owners don’t spend the time working on their business for many reasons.  Many owners think it’s expensive, complicated and very time consuming.

The truth is that by not working on their business, should any of the above scenarios occur, the consequences would be much more expensive, time consuming and potentially devastating.

In our planning practice, we estimate the average time to create a business and estate financial plans for a business owner, is five to ten hours, not including time with attorneys and accountants who are a part of the team.

How does our process work?

Our system is built around planning with the least amount of time needed for the business owner’s time.  To do this we use technology in communication such as phone conferences, video conferences, and audio and video productions to explain our client’s situation.  This allows the business owner to eliminate using work hours for this project.  We can do this technologically with clarity and brevity.  Our plan is focused on brevity for the business owner.

Our Process: 

  1. Viewpoint Meeting: Define what are some of the areas of concern using our Viewpoint System.  This is a 30 minutes conversation.  Our business owners need about ten minutes to prepare using this aid.
  2. “The Selection Meeting”. Once we define the areas of concern, we dig deeper with a 45-minute Selection Meeting. This is where we discuss all of the possible areas where the client may have problems and concerns.
  3. “The Planning Stage” is the longest meeting. This is about 1½ hours.  Prior to the meeting, we send our client material which they can review and prepare on their own time.  This takes them about 20-30 minutes to complete.
  4. The Discovery Meeting is about one hour where we bring together our findings based on their personal situation and discuss which issues and direction of implementation the client may wish to go. Again, our client receives the information to review prior to our Discovery Meeting[i].
  5. Implementation Session: This is where we start implementation needed to solve the issues.  This is the time when all of the client’s advisors work together to get the planning completed.  For example, our findings are discussed with the professional team and look for their advice and suggestions.    Also, this process brings everyone on the team up to date on the business owners’ situation.  This process breeds new ideas and strategies (earlier in the process, I would have been in touch with these advisors between the Discovery and Implementation Meeting). This may be the first time the client has had all of their advisors working together and sharing knowledge about the business owner! 
  6. Semi-Annual or Annual Review:  This is where we move on to the next area of concern; One concern at a time (in some cases, there may be overlapping of concerns and they can be bundled in the planning).  If there are no additional concerns, we review what has been implemented. This is an automatic process, so we are always adjusting as the business situation changes.

For business owners who realize that they need work  on their business, our process can maximize their business’ potential profit, organize them in a timely fashion, and fine-tune them in the future, so they can maximize their “business potential value” when they exit from their business.

[i] We plan for this time, but do not limit this session to a time schedule.

Critical Questions That You Need To Answer If You Own A Business!

Building a business is hard work. Protecting and preserving it is even harder and overlooked by business owners.

While many owners expect family members to take over the business (69%), very few have actually made plans to make sure their wishes are accomplished (26%), even though they realize the importance of estate and succession planning as is an integrated part of that planning.[i]

A succession plan is complex, time consuming and involves attention to details along with many hard questions which need to be answered for a comprehensive and effective succession plan.  It is also the key element in maximizing the return on the investment of your business. This is the big financial payout, the sale of your business.[ii]

SOME MAJOR QUESTIONS AND ISSUES TO ASK YOURSELF!

What if a shareholder wants to sell their interests?

  • Is there a right of refusal for the other owners?
  • What are the financing arrangements?
  • What are the recourses if you fund the buyout especially if the funding is over a long period of time?
  • What is the arrangement if the business fails, how will you get your money if you financed the sale?

 Who steps in your shoes if you want out? 

Not everyone has the luxury of leaving a business when and how they want to.  Things like death, disability, and situations are uncontrollable.

  • What are your contingency plans when a trigger occurs (death, health, non-voluntary situations)?
  • Do other members of the firm have access and authorization to use funds to keep the business going if there is such an event?
  • Does your family take on personal obligations for financial notes and loans you have signed personally to fund your business operation?
  • Do you have estate documents and health care directives, should you have a disability or become incapacitated?

Taxes- and the planning for them Continue reading “Critical Questions That You Need To Answer If You Own A Business!”

The Story! The Cost of Funding Your Buy and Sell Agreement! Options!

The Story! 

The Cost of Funding Your Buy and Sell Agreement! Options!

Over many years I have experienced many business owners in total denial about the cost of funding their buy and sell agreements, thinking they can come up with the liability when the trigger of death occurs.

The four listed ways are compared below.

  1. Cash
  2. Borrow
  3. Sinking Fund
  4. Life Insurance

Let’s take the one by one.

Cash: This is assuming the company has the cash at hand, idle. Rarely is this an option. Growing companies reinvest in their company and only keep enough cash reserve as needed.

Borrow: A company just lost a valuable member of the company. Most bankers would probably want to see how the company will fair after the death of a key person and would want to know how the liability which has just been created will affect the cash flow of the company before loaning more money. There probably is a good chance that outstanding line be pulled in by the bank (probably a covenant in the loan agreement).

Sinking Fund: Mostly just theory! In 48 years, I have never seen a company try to develop a sinking fund. If the company was putting money in the sinking fun, they are losing the opportunities this money could create by investing in the business rather than on the sidelines. Not reasonable as the actual amount of money needed is available should death occur prior to the target date of accumulation. The least appropriate method.

Life Insurance: At its simplest benefits, it is immediate, tax free and the funding level is immediately known. Also, the cost is only 17 cents on a dollar rather than the much higher costs of the other three options.

Summary: While we don’t know when a death or disabilitymay occur, the company should at least be prepared for this trigger. Today the price of life insurance is low-cost. There is no reason not to purchase at least temporary life insurance (10-30 years), such as term insurance. The cost of life insurance in the example is using cash value life insurance.  Increased Sales To Fund Cost: Another measure of effectiveness of funding the buy and sell is to measure how much more in sales the company has to do to pay for the funding method.

Costs:  Funding over 15 years. 

Cash; 1,039,464 Loan: 1,306,085. Sinking Fund: 901,613 Life Insurance:  171,512

Also, what do you need to have in sales to pay for the method: 

Example, with Life Insurance Cost, @20% profit, sales would be $857,560

With Cash: There would have to be $5,197,320

 

 

page1image7794464

 

Be An All-Star Employer and Build Future Value In Your Business!

When you go into your own business, do you have a place to go, a paycheck, and a position?  You basically have a job.   However, when entrepreneurs go into business, they look for the big payday, the selling of their business.    Would it be nice to sell your business for 10 or 20 times your annual salary?

Building a business is not easy.  If you are going to put your efforts into building a business, build a business with a great foundation.  It is easier to build value in a business with a good foundation.  Let’s assume you have systems in place and a business presence.  What is needed for real growth once you get through the systems and organization formats, is to create and develop a business culture!

By having a business culture, marketing and recruiting get easier and less expensive as people are more attracted to your company.  Long –term employees get to know the business, your customers you’re your suppliers.  They become more efficient and become the “team”.   You will attract better quality candidates to hire.  You can become more selective and create the right roles for your employees.

Go to Trader Joe’s and ask the employees how they like working there.  You will soon find out that there is little stress, a lot of fun, and the employees want to be there working side by side with each other.

When employees are happy and like their jobs, they stay, they learn, and they attract investors and future purchasers.  This culture promotes profitability and consistency, which is how you maximize your potential profitability of the company.  Consumers like consistency and the added value of having a company that is easy to work with.  I like to call this the “Amazon Factor”.  Who doesn’t like ordering from Amazon? They make it easy for many reasons.

Having this type of environment doesn’t automatically happen.  You need to invest in it to create it, however, it will pay off in the future.  They key is to start early creating the vision you have for your company long-term. Create the vision of being the “All-Star Employer”, and you will attract the best, like minded employees, and create a great business that people will want to work at.

 

Living the Dream

What People Are Saying About Tom!

Tom’s ability to plan a strategy and its implementation accurately and quickly have contributed immensely to the success of many clients over the past several decades. Tom goes out of his way to service clients. He made sure we understand the planning process and is extremely patient. His talents are that of an educator and planner. We benefit from his pragmatic approach to our business and personal planning needs.       Carl Bonamico, Liberty Bank Commercial loans

When Tom says he will do something, he does it. He’s a very dependable person and is extremely honest. He looks at all the options possible in your overall planning. If he sees something which doesn’t fit, he tells you. James W Cowan Jr. Life Planning Consultants

Tom has all the qualities that I look for in an advisor– Integrity, knowledge, patience and his follow-through can’t be equal.       Brent Berti, Reverse Mortgage Broker

 I have worked with Tom in the insurance and estate planning business for the better part of 25 years. I have always found him to be hard-working and extremely knowledgeable in his areas of expertise. I have full confidence that when I refer clients to Tom, he will be thorough, clear, and recommend the proper products to offer solutions to their problems.    David Isenstadt, owner New England Group Insurance

Tom has guided my business and personal finances for 35 years. He has always been honest, dependable and readily available. The Shredding Source has benefited greatly from his approach and talents as a business and benefit planner. I continue to avail myself of his proficiency and expertness through my retirement… William A. Young, The Shredding Source.. A Veteran Owned Company

 Having dealt with Tom for over 20 years I can say he is unique in his hands-on approach with his clients. With the Ebb and flow of individual finances, he always presented programs that make sense for the time and circumstance. I have faith in his approach and recommend him highly. Ronald Finocchio, Owner of The Shredding Source, A Veteran Owned Company

Tom is been invaluable to me and my clients in the areas of advanced life insurance and estate and business planning. He has extensive knowledge in this field and his ideas and solutions are creative.   Tom Maercklein, Insurance broker

Tom goes out of his way to understand his customers and their unique needs. Tom can listen to his clients, understand what it is that they truly need and want, then deliver to them a great solution.   I highly recommend Tom.   Joe Perrone, Co-Owner- New England Collision

Tom’s financial education has given us a path towards a rewarding future. This was especially important when we had a financial setback. Tom worked through it with us and took many meetings and financial input to put us back on a strong footing.  His confidentiality is above reproach and he is clearly a most compassionate man with the utmost integrity. We have considered him a friend for years now.  Wayne and Ginny Klinga, Owners of Park City Valve and Fitting, Bridgeport, CT

 We have worked with Tom for number of years and he has given us professional and well thought out assistance with our retirement planning. In addition, we have owned a business for over 30 years and the eventual sale of that business was a very important part of our plan as we moved on with our lives. We had to think about employees, timing of the sale, how best to accept and invest sales proceeds and how this stressful and most complicated process would fit into our retirement strategy. Tom worked with us on this important part of our plan not only with his own advice, but also steering us to literature written by experts to guide us on our journey. We always looked forward to and felt comfortable in our meetings with Tom. His constructive advice was a key part of our retirement transition. Frank and Diana Byrne, FORMER BUSINESS OWNERS