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Business Owners: Tackle Risk Head-On in 2017

Business Owners: Tackle Risk Head-On in 2017

| December 02, 2016
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Each new year brings a renewed optimism. It’s around this time of year most business owners reflect on their progress in the previous year and set goals to achieve even greater success in the year to come. However, amidst the hustle and bustle of nurturing our businesses, we can sometimes overlook areas of risk – both to us and the business we’ve built.

 Protecting Your Business by Minimizing Risk

You work hard and put in long hours to now own what’s often referred to as “sweat equity” but unbeknownst to you and many others like you, you’re likely more risk ridden than the rest of the working population. When it comes to protecting what you’ve created and the fruits of its labor, it’s quite likely there’s more work to be done. According to The American College:

  1. Fewer than one-third of small business owners have a formal financial plan for managing income and expenses during retirement.
  2. Fewer than a quarter have a formal plan for transitioning their business to new management and ownership when they are ready to retire.

It’s important to have a plan: How will you protect yourself and your business if tragedy strikes? How can you diversify your savings so you’ll have a healthy nest egg when it comes time to retire? How will you manage the succession of your business when you’re ready to take a step back and enjoy what you’ve accomplished?

 Insuring Your Investment

If you don’t already have insurance to protect your business, it’s worth considering whether you should acquire liability coverage to protect your biggest asset from lawsuits, injury, or even death. Having an insurance policy that covers a range of liabilities can keep you, your business, and its patrons from experiencing the full brunt of a tragedy in the unfortunate case it does occur.

The Importance of Diversifying

Second to insuring yourself and your business is the importance of adding another layer of risk protection through the use of diversification. Business owners continually face the temptation of investing all their savings back into their business with the assumption that it will provide a much higher rate of return if the business remains profitable. However, when analyzing this common practice from an objective viewpoint, it’s deemed quite risky. Although you’re confident in your ability to maintain your success, you’re opening yourself up to many vulnerabilities by failing to diversify your investments. In essence, you don’t want to “put all your eggs in one basket.” There’s likely ways to reinvest your profits while also setting aside portions of your earnings to diversify and protect you from outside factors beyond your control.

Creating A Succession Plan

Whether you'd like to retire or pass the family business on to the next generation, many business owners will eventually face a time when there’s a need to transfer ownership rights to another person or entity. Entrepreneurs have several options when it comes to transferring ownership rights. You’ll want to consider all your options carefully before making any decisions to exit your business.

Finding success as a business owner can often lead to a narrow focus. However, it’s important that you take time to broaden your view of success by protecting what you’ve worked so hard to build. Consult with a Certified Financial Planner™ who has the knowledge, experience, and ethics needed to help develop a holistic plan that takes all your unique circumstances as a business owner into account. By being proactive now, you’ll be able to execute strategies to mitigate risk and preserve wealth well into your retirement years.

About the Author

Joseph "Barney" Lane is a service-oriented, client-focused Financial Advisor with more than 30 years of experience in financial services. Barney holds a Bachelors in Business Administration from the University of Florida, and numerous certifications including the highly regarded Certified Financial Planner™ certification along with the Certified Life Underwriter®, Chartered Financial Consultant® and Retirement Income Certified Professional® certifications.

References

The American College. “Small Business Owners Are Unprepared for Retirement”. State Farm Center for Women and       Financial Services at The American College, 2012, http://womenscenter.theamericancollege.edu/sites/amcol-       base/files/Unprepared_for_Retirement_Press_Release.pdf. Accessed 22 November 2016.

Small Business Administration. “Transfer Ownership”. https://www.sba.gov/managing-business/closing-down-your-business/transfer-ownership. Accessed 22 November 2016.

 

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