Proper annual planning involves more than just taxes: Time to review your business
The end of the year is not the ideal time for tax planning, but many people put off thinking about taxes until year. Proper financial planning though is more than just tax planning, and extends beyond investment portfolios and tax issues.
In the first of our series of blogs, we discussed the importance of periodic review of your personal estate planning. Now we direct the focus to a review of your business.
Business owners and partners in professional firms must periodically review their businesses. It is difficult to pull yourself away from the operation of the business or professional practice to address administrative and practice management issues. But it is critical to the continued success of your business.
The first issue is how to have such a management meeting and review. In reality, you are conducting a due diligence review of your own business. It is best to have these meetings away from the office. A management retreat helps avoid constant interruption from employees, telephone calls, and emails. Take a few hours and put an away message on your email account and focus solely on issues critical to your business. Look at the business, its structure, agreements, obligations, etc. as if you were a prospective purchaser. Many business owners neglect to update their agreements. This may include forms businesses use when dealing with vendors or customers, employment agreements, or the agreement between the owners; shareholder, partnership, or operating agreements. These agreements may become outdated or require revision due to changes in the ownership, structure, or growth of the business. Many business owners, even professionals, do not even have an agreement in place, and do not think about issues until after a problem develops. It is important to review these management and operational documents, and make sure they address contingencies that may come up in the continued management and operation of your business.
Business owners often fail to update corporate minutes, or do not have annual meetings as required by law. It is not uncommon that a corporate book is empty or cannot be located. While corporate minutes in a closely held corporation may seem unnecessary, the fact is that it is important that minutes be up to date. A corporation is formed by people starting out in business to shield against personal liability; make sure the corporate formalities are adhered to and the minutes up to date to preserve that shield.
It also is prudent to discuss future plans for the business and the individual owners. Perhaps it is time to consider putting in place a plan for succession, either in management or ownership. Succession planning is a difficult issue to discuss, but a necessary one. You need to be realistic. How long do you expect to be active in the business? Who will manage the business if and when you are not able to devote your full time to the firm? This issue is particularly difficult in family owned businesses. Dealing with a senior family member/owner who does not want to step away from the business is a problem faced time and again by family owned businesses. The only way to resolve these often inevitable problems is to have the discussion early on. Perhaps agree on a phased in transition of control. An important factor in avoiding disputes is the sense that everyone is dealing with each other in a good faith manner and being fair. And that the “rules” will apply to everyone.
Another crucial concern is management structure. Does your business have a strong management structure and team? This is especially true of a business owned and controlled by a single owner or only a few owners. Aside from the owners, there must be competent people in place in positions of authority. Many times an owner makes all the decisions and is unable to delegate any authority. This decreases the value of your business. To attract investors, or a potential purchaser of the business, the business must be more than the owner. There must be an infrastructure that will continue the operation of the firm. A key element an outside investor will evaluate is the management team.
Along with a review of ownership agreements and management structure, business owners need to look at all insurance policies. Do you have adequate protection, both in terms of liability and in the event of a death or disability of a partner/owner? Are there special needs for insurance policies, perhaps product liability, employee claims, and insurance for members of the board of directors? Consult with a business insurance advisor if necessary.
Every business has its unique considerations. An annual review also will identify issues and help an owner address them to make the business more efficient and profitable.