You work your butt off as a business owner to build an entity that if you are lucky provides you the income you want to see throughout your life. Why is it that some business owners are not only more successful, but seem to have more finances than others? We here at Centennial Financial Group, LLC wanted to put this educational article together to help teach any aspiring/veteran entrepreneurs what financial strategies can be implemented through their business and when.

One of the great things about being a business owner is you have access to strategies that most other people do not. They allow you to put more away, be more tax efficient, and just generally have better financial options.

There is a challenge however, and that is to avoid the Business owner conundrum. The business owner conundrum is a situation many business owners (especially small business owners) find themselves in.

The Business owner conundrum is where the business owner works their butt off their whole life to build the business up. They just focus on the business however, which has the potential to grow into an asset (often a valuable asset), but once they get to the maturity stage of the business cycle they run into the problem.

The owner might want to take a step back from the business or otherwise capitalize on this asset, but they soon realize that they have an extremely illiquid (slow to sell) asset on their hands. They are then stuck in the situation where they want to go off and enjoy their life, but they are unable to due to how illiquid the asset can be.

*insert graphic*

Let me give you an example. There is a business owner I know who has a very successful business around construction. He runs a business that does very well and he enjoys working in the business. He is getting tired of the daily stresses that come with being an entrepreneur though. He wants to eventually take a step back. His business is worth $3,000,000 on the latest valuation, which is not shabby at all.

Is that cash or money in the bank though? No.

In order to truly capitalize on that valuable business, this owner needs to find someone that can run the business (he claims no one can do it like him) or find someone to buy it from him. Both take time and money to do!

Both are keeping him from doing what he loves.

There is good news. This situation can be easily avoided however. It's all about prior planning.

In this series we will be talking about the different stages in the business and key  financial strategies to consider and why. All of these strategies are meant to not only help the business, but also to make sure the owner can avoid the business owner conundrum.

Lets dive in.

The start-up stage (1-5 years)

This initial stage is a stage that any successful business owner went through and many future successes (and failures) may be going through now. This is by far the most challenging part of building a business is surviving the initial stage. Many will fail at this stage, but the ones that succeed will be propelled to the next stage and beyond. Embrace the grind of this stage.

For the start-up stage, one of the biggest keys to success is to pour as much money as you can back into the business. This investment will create a proportional effect of invested money to growth of the business.

Now obviously there is a huge variety in that statement such as intelligent investment in the business vs. bad investment, but part of the start-up phase is the learning cuve. Learn how to make the business work and adjust along the way.

Because in the stage the best thing to do is invest back in the money, this stage there is not a lot of outside investment that should be considered from a financial perspective.

Therefore, the best strategies in this stage are protection, growth, and tax-efficiencies.

All the best financial strategies we will discuss will be around those priorities for this initial business stage.

Protection:

• Insurance: Insurance is one of the earliest forms of protection that a start-up should consider for their business. Arguably certain types of insurance should be considered before even going to business!

The reason you want to make sure you have appropriate insurance is because of the fragility of a business while it is being built. It takes tremendous effort to build a business often times because of all the variable that come into play. However, because of that just one thing that goes wrong (which inevitably something does) can transform success into bankruptcy.

There are many examples out there of horror stories around business that were going great, but then something happened. Either something around timing, a bad business move, or even a natural disaster. That is part of the business game.

How you combat that is through insurance. Because typically the cost of insurance is far less than the cost of the damage it protects against.

As a start-up the biggest risk is to you and your business. Therefore there are several main insurances that should be looked at.

Non- personal insurance (P&C, professional, etc.) any insurance that protects your business in general. What type of insurance will vary from business to business, but making sure the business is protected adequately will help minimize the chance of something coming and screwing up momentum.

Personal insurance (life, disability) any insurance that protects you the founder. In the initial stages of a business you will be wearing many hats and be the beating heart of the business. Without you (founding team) there is a high likelihood that the business will not succeed.

How you protect that is through personal insurance to protect your business, such as life insurance on the founder, Keyperson insurance, disability insurance (if there is income), then business overhead insurance. These are all solutions designed to protect the business’ success if you are no longer around.
- Budget
This one is going to make many founders cringe. Having a budget broken down for not only the business, but also your personal side as well!

A lot about the start-up phase is about trial and error in order to figure out what works. Sometimes that is easier said than done, but a budget will help you focus on those trials to find more efficient ways to run the business. In other words it keeps you organized around finances as everything else is most likely not as organized in this stage.

Think of finance as the blood of business body. It needs to be flowing in order for all the other parts of the business to work effectively. The budget helps to define where everything will flow and how much.

The tricky part about this stage however, is how much variety there will be from the flow. There is no data to tell how much money will be flowing in and out, so putting together a budget can seem tricky.

Which is actually why it is even more important. As accurate numbers come out, then it is important to have a place to adjust those numbers.

Same goes for your personal side. As a business owner your personal finances and business finances have a tendency to merge, especially in the start-up when money is tight. Having a personal budget to minimize costs, so that you can focus as much as possible on the business is incredibly important.

• Debt repayment/management: Managing debt seems like something that everyone hears about these days. We are in a bit of a crisis through personal debt, but at times debt through business is referred to in a different way. Have you ever heard the term, “leverage?”

Leverage is a business term for taking out debt in order to “leverage” the debt and use that money to invest in something that will get some sort of ROI.

This is actually somewhat true. For example, if you dont have the cash to purchase new equipment and you have a huge order to fill, taking a loan to get your business to the next level may make sense.

Be careful! No matter how you frame it debt is not usually a good thing. Leverage can be a tool, but it can also work the opposite way.

In a start-up especially, debt repayment can be challenging. With all the new expenses coming around and cash flow being a constant challenge, how do you manage debt?

Well for starters you can consider managing debt on a personal level before worrying about the business level. Managing debt, paying it off efficiently personally will keep you from getting into a negative position in both.

By handling debt effectively in both your personal as well as business world you will learn how to handle debt in a manner that is appropriate. Because debt is simply a tool. It is important to learn how to handle that tool like every other piece of the business.

• Legal entity: What entity should I build my business around? I haven't done anything because I am waiting on my LLC to be approved. There is a lot of misunderstanding and confusion around what kind of legal entity should be obtained. Especially in a start-up world.

So which one is the right one? Should you even have one? What do all thes letters mean? Where do I start? These are some important questions to answer as a start-up. (Sometimes really important depending on your industry.)

We help break down a more detailed list in our article What is the right business entity for me? We will touch on some of the details now though.

First, what are they types of legal entities? The big ones are Sole Proprietorship, S-corp, LLC, and C-corp. These are the ones we will focus on although there are a few others. (Benefit Corporations for example. You can read our article what are Benefit Corporations?)

We won't get too in depth, but lets summarize each entity, so you know what to look for.

Sole proprietorships are the simplest of the entities. It is very straightforward and not complicated at all. The simplest way to summarize is that if you sell some sort of good/service and get paid for it, then technically you are a sole proprietorship. You need to file your own taxes and everything. Pros: simple and fast. Cons: you are liable for everything because it is you.

S-corp is a bit more technical. S-corp is a type of corporation where you have limited liability (protected from someone suing you), but your taxes are not treated as a separate entity. In other words, you want to be protected, but you want the taxes to be paid through your personal tax bracket. Pros: There are some good tax strategies to use. Limited liability. Cons: Have to file and now your taxes flow through to your personal.

LLC is one of the most popular if not the most popular. The LLC (Limited LIability Corporation) is popular because of the flexibility and protection it offers. Like all corporations it offers limited liability. The big difference here though is that you can choose how it files taxes. Believe it or not that is a huge advantage. You can choose to file as either a S-corp or a C-corp. For a start-up this is a huge advantage. Pros: flexible, limited liability. Cons: Need to apply for the license and make sure you are filing taxes correctly.

Finally, the C-Corp. The C-corp is what the large corporations are broken down as and the traditional “corporate” business entity. This is when a company files their business and it becomes a complete stand alone entity. The highest layer of protection, high scalability, limitless shares, and other advantages make this a great options for companies. However, it is expensive to create and maintain, so it is best until the business gets to a larger size. Pros: A lot of benefits and tax strategies can be used. Cons: expensive to create/maintain and complicated to set up.

So which entity is right for you and your start-up? That depends on several factors. However generally speaking you want to look at your industry (are you in a complicated/risky industry?), what size company are you, what kind of business, etc. Then understand how they all work and make a strategic decision. You can also refer to the chart below for an idea of some criteria.

**include graphic like a ven diagram for what entity to consider.**

• Business/personal rainy day fund: The one constant and predictable thing that we can say about the start-up phase of a business is that there will be unpredictability. That is one of the challenging factors around starting a business is that there is really no way to predict what will happen.

With that being said, one of the most important strategies to consider is establishing a rainy day fund in both your personal account and the business account.

For those of you that don't know what a rainy day fund is, it is a fund that has 3-6 months of living expenses in the account. For a business it is about the same. You want 3-6 months of business expenses (overhead) in the account ideally.

This extra cash is once again a way to protect yourself from the inevitable unknowns that will be coming about from business. In addition having cash to pull from when there is something that needs to be invested into is a very helpful way to protect and scale at the same time.

It is challenging to build it up, but as revenues start coming in set up a system to auto pull a certain percentage from those revenues into a reserve account.

You will be surprised how quickly it builds up and will be happy when it is built up.
Investment:
There are a few other considerations that should be looked at in the start-up stages of business moving forward. This section specifically is to cover investment considerations. Like we mention in our article about the business owner conundrum, it is important you balance investing in yourself with investing in the business itself.

Now the challenge of the start-up stage is that it varies tremendously. You will have ups and downs constantly. The investments broken down below are ones that should be considered, but should also only be considered if your business fits the criteria where is makes sense.

In other words, not all the investments listed below are right for everyone. Some can be right and some can be wrong.

What our goal here is to explain how they work, then when you should consider them.

• SEP or Uni(k): So the first thing we are going to talk about are two investment plans for anyone starting up a business. Now the caveat here is that they are best used when there are little to no employees part of the plan. We explain more details around the plans themselves in this article SEP vs. Uni(k).

First let's dive into what these plans are and when and why they should be considered.

SEP (Simplified Employee Pension) is a plan that was created to give business owners and employees an opportunity to fund a retirement plan for themselves. Why this is one of the best plans to consider for business owners is how much can be put away in this plan and it is a way to get a tax benefit as well.

You can put quite a bit away into this plan (25% of earnings or up to $57,000 whichever is less in 2020) making it a great investment tool. Since it is also tax-deferred, whatever you put in there can be deducted.

However, the catch is that whatever you contribute you NEED to contribute the same amount into another SEP for your employees. Which is why it is optimal to use only when the team is small.

Uni(k) (also known as a solo 401(k)) is an investment plan very similar to a SEP plan, but with several differences. It is a 401(k) plan designed, so that only one person can participate in it.

LIke the SEP it allows for a deduction as well as to put some great savings aways towards your longer term goals.

You can again, but quite a bit of money away into this one, up to the 401(k) limit of $19,500 (in 2020) per year and a catch-up provision of $6,500 if you are above the age of 50.

This plan is excellent in many ways, but there are also limitations. First, although it is just for one person you still need to do the 401(k) requirements for the regulations and other administrative challenges.

Finally, you can only set one of these up if you are working by yourself or including a spouse. Otherwise you cannot set one up,

Now these are some powerful investments, but again as a start-up these should only be looked at if there is excess capital available or you are doing well as a start-up

• Accountant: One of the best investments you can make in business, but especially as a start-up is to research and find a great accountant. There are few things that will give as large a return as finding the right accounting partner to help with taxes and other needs of the business.

Spending some time to find an accountant is important for anyone, but why it is important for business owners specifically is because of finding the right accountant.

An accountant should be a partner with a business. What we wrote about in our article:  "The Proactive Accountant" which can be found here:  .

This type of accountant not only tells you what you can and cannot deduct from your taxes and do everything else that usually is done. What a proactive accountant can help with is to almost take a role as a CFO in terms of recommending what investments to look at moving forward.

A truly valuable accountant will be able to look proactively forward and help you determine what investments make the most sense financially, but also in regards to taxes.

Investing the time to find a good accountant is invaluable and should be considered especially in the start-up stage.

• Financial Plan: Any true entrepreneur or business person knows that planning and talk don't get anything done. It is the execution behind them that makes the magic happen.

That does not mean however, that they don't have their place.

As you move forward in the business emerging from a start-up stage to the growth stage and beyond there will be many challenges that will have to be delt with. Some expected, but some not.

Having a plan will help the business because things you can foresee will be planned for. Making the action you put behind it that much more effective.

The same goes with your personal finance. Having a plan in place for how much you need to invest towards your goals, How you handle debt, what will hurt/help your personal financial picture, these are all things a plan helps.

By getting a financial plan in place it will help keep you focused because you know that you have something in place for your personal finances as well.

• Pay deduction Roth IRA: What happens if you and your founding team all want to start up an investment plan, but since it is a start-up there are limitations on what you can do? If you are part of a team and are not able to start-up a SEP or a Uni(k), that is where this strategy comes in.

A payroll deduction Roth IRA is a strategy that allows you to contribute directly to an account (Roth IRA) from payroll. This strategy will allow a small benefit to the owners while also building up investments.

It is a cost effective benefit to employees without the business really incurring any cost. There are no matches like in a 401(k) or SIMPLE, so there isn't a cost burden on the employer.

It is an easy way to begin investing not only for yourself, but for your team as well in a more cost effective manner until you have the cash flow to contribute into a bigger plan like a SIMPLE IRA.

We go into more detail about payroll deduction Roth IRA in that article. Check it out if you want to learn more details.

Growth stage (5-20 years)

You have worked your butt off through the “start-up gauntlet,” surpassing all challenges standing in your way. You are now starting to get the hang of the business, you see light at the end of the tunnel for the business is moving in the right direction.

You know how things work, you know what processes work, you have a general solid understanding about your business. This is the stage all businesses are excited to achieve.

Once you get to this part of the business cycle, your priorities and what should be looked at change. The business should be scaling appropriately, so pouring money back into the business is still recommended, but you can now begin to invest in other ways.

Your cash flow may be more predictable, your team may have grown, you should now consider what else is out there and begin to construct some optimal financial strategies in this stage.

The priorities in this stage are various employer and employee benefits in order protect the business, fund investments from the business, and how to continue to be tax efficient.

Being tax efficient becomes very important at this stage due to the investment and cash flow that (hopefully) will become more consistent at this stage.

• SEP: We already spoke about the details of this plan in the Start-up phase. Although better suited for the start-up stage this plan can be just as impactful.

If you want more details on the plan check out our article "SEP vs. Uni(k)" which can be found here:   .

Now the big key to a SEP is are you still working by yourself? Or do you have full time employees? Because whatever is contributed to your SEP needs to be contributed to any employees you have as well.

If you are working by yourself still or have some employees you want to make really happy, then a SEP is a good plan. Why is it a plan that should be considered in this stage?

Deductions baby.

Because of the amount you can potentially put away (25% of earnings or up to $57,000 whichever is less in 2020) you can get a very solid deduction in that plan. This helps to reduce the impact of taxes, while also putting some good money away for investments.

• Deductions: This is going back to having a great accountant on your team. With the money you spend on the business either investing in the infrastructure, investing in larger purchases, investing in Employee Benefits, or figuring out how to pay the team, using deductions when possible becomes very important.

Your accountant will be able to help you determine what can be used and what cannot. In this stage the rule of thumb is to keep those receipts and talk to your accountant often.

See if they are a Proactive accountant (if not find one!), so you can not only map out some potential investments, but also if those investments help with taxes.

Now I keep calling purchases for the business “investments.” That is important terminology that I wanted to touch on.

I say that because you should not spend money unless there is a good ROI (Return On Investment) for the purchase. Remember, don't spend $1 to save 40 cents.

• Employee benefits: As your business scales and grows a result of that is your team will grow with it. Depending on what your managing philosophy is, taking care of your employees may or may not be a priority.

However, with how competitive the business landscape is, now it may be beneficial to consider sweetening the deal of working at your firm by implementing some employee benefits.

Why would that be beneficial? LIke mentioned with the retirement plans, these benefits can be many and not only can help you and your personal financial goals, but they can also benefit the business by giving a potential tax deduction as well.

Not to mention that keeping employees happy lowers turnover and increases productivity as well. Incentivise the team, take care of them, and they will take care of you.

There are many employee benefits to consider, so we will begin to go into them.

• SIMPLE plan: Now we get into some retirement plans for the businesses. These are an excellent investment for business owners because of the benefits they get. Not only some potential tax deductions, but the owner can contribute towards their own plan, and the employees are kept happy as well.

We look at a SIMPLE plan at this stage, because in the previous one we looked at the payroll deduction Roth IRA in the start-up phase because of the little to no expense for the business owners and there are probably not a lot of employees at that point.

In this stage you will probably have more than a handful of employees on staff. If you have more than 3 full-time employees, but less than 100 (in 2020), then a SIMPLE plan may be perfect for you.

A SIMPLE plan is a retirement plan that allows a business to set it up, so that their employees can contribute an amount from their paycheck on a tax-deferred basis and get a match too. In some ways it is a step before you set up a 401(k).

Like other retirement plans this is specifically for putting away money for retirement, so there are limitations around when you can access and amounts you can contribute per year, but from a business perspective it is a retirement plan.

What are the benefits? Well from a business perspective, there is a match, but it is not as big as a 401(k) (up to 3%). However, one of the big differentiators is how simple (pardon the pun) it is to set up. Once the plan is set up, then the contributions are managed by payroll and there are no yearly requirements for filing or anything like that.

It is a great solution for any business that wants to put something in, but a 401(k) might not be appropriate.

• 401(k): Ahh the 401(k). The most popular and well known (by name at least) retirement plan in business is a great benefit for employees.
  This plan is an excellent options for businesses that want to provide a benefit for their employees above and beyond other options.

A 401(k) plan should be considered however, after a SIMPLE plan has been established. The reason? It is because of how complicated some of the guidelines are in the plan itself. There are a lot of regulations and reporting guidelines required by ERISA that can make it more complicated than others (like the SIMPLE).

However, for a larger business especially it becomes the best option.

A 401(k) program is a retirement plan that allows all contributions from your payroll pre-tax to go into the plan and grow tax-deferred.

Why is it so good? It is because of how customizable it is. You can build a plan that perfectly suits what you want it to accomplish.

Do you want to share profits? It can do that. Do you want the leadership team to get more benefit? You can do that. Do you want to give a bigger match than 3%? You can do that.

There are a lot of great ways to structure a 401(k) plan and to leverage its flexibility. It can become a great asset in many ways to the business itself and can allow for a lot of money to accumulate over time. Not just for the business owner, but also for any employees that want to take part.

• Group retirement plan: So what if you don't like the idea of a SIMPLE plan or a 401(k) plan for your business? What else is there? There are many other plans that are out there, but they begin to get more complex from there.

We will go over a few of them, so you can pick the right retirement plan for your business. There is a lot to include though, so we will only summarize quickly, but will go into more through a separate article.

403 (b) is the first one we will go over because it is pretty simple. 403(b) is the same thing as a 401(k) except it is for non profits and public organizations. Easy.

457 plan is a special supplemental retirement plan. This plan is only available to non-profits and public organizations. This plan allows you to contribute extra money on top of all other retirement plan contributions. Can be a great compliment to other benefits.

Defined benefit plans are a more complex compensation and should mostly be considered by big companies. These plans are most popularly known through “pensions” that used to be the biggest source of retirement.

These plan were defined benefit because depending on how they were set up you had a clear “defined” and guaranteed payout at retirement. Although a wonderful benefit to provide, often times they become expensive and complicated.

Deferred compensation plan is another special compensation option usually reserved for leadership. Deferred comp plans are when a defined benefit is funded at present and promised to the employee at a future date.

Although a good benefit, the part of these you need to be careful about is that the taxes for both the employee and employer are deferred. So keep that in mind.

Stock plans are one of the last plans we will touch on briefly. This plan is similar to some of the others, but the difference is how you benefit. In this plan instead of being paid money, you get paid stock of the company. Sometimes being very lucrative if the company is a strong one.

FInding the right plan really depends on you and your business goals. However, if you get one, then your personal plan, your business, and your employees will thank you for it.

• Loan payments: This is a newer employee benefit that companies have considered implementing. This benefit is where the employer offers loan assistance. Typically, the assistance is for student loans, but in theory can be extended out to others.

How does it work? Well at this time there are several different ways of doing it. We talk about the details ins Student Loan Assistance Programs, but we will focus on the most popular.

Right now one of the more popular methods is treating the payment like a 401(k) where the company “matches” the employee’s payment towards debt each month.

Then the other is that the company will “match”” extra into a 401(K) program for whatever is paid towards the loan. The idea here is that the employee can then put more towards the loan without worrying about missing out on retirement.

This is a newer options for benefits, but with the impact of student loans right now I would not be surprised to see this become more popular as time goes on.

• Health insurance: Health insurance is an interesting space right now to say the least. It is, no matter how you look at it, expensive. There is a lot of changes beginning to happen in the industry as well.

Those factors are some of the reasons why Health Care For The Workplace is one of the best benefits you can give yourself and your employees.

This should be one of the first benefits you consider as an employer (if you can afford it) because of how popular it is. In addition because of spreading out the risk to multiple people, the cost will decrease significantly.

In addition, for the business this could become a tax deduction as well, which would help with the tax burden.

Here is the catch though. You should always shop around and do some cost comparison. Because there are a few factors that could effect the group plan.

Health of your participants-- if you have some older employees and/or ones that are not in as good health, then it could drive the premiums up. To combat this have a plan set up that the employee pays for the premiums.

Minimum participation-- this is the tricky part for businesses in a growth phase. Depending on your business size and also if you design the plan for individual participation, then you might not hit the minimum participation to get a group plan in place. Just remember to explore the different options of FInd a Financial Planner That is Right For You to help out.

• Group insurance: We now get to a benefit that many people have heard about and should generally be considered after you get health insurance in place and a retirement plan. That is group insurance.

Generally speaking there are two main types of group insurances. Life insurance and Disability insurance.

The benefit of a group plan, similar to health insurance, is that it becomes significantly cheaper per person and also, some people that may not have been able to access insurance or are not eligible individually, may be through a group plan.

Now there are two main types of Group Insurance for your business. Life insurance and Disability. You can also design them two ways, which would be contributory and non-contributory. In other words, one the business pays for (non-contributory) and you get a deduction. The other is where the employee pays the premium. (contributory)

Life insurance is first. Like individual life insurance policies, the purpose of this insurance is to pay money to your beneficiaries in the event of your death. Now the key to remember here is that is you pay the premiums for you and the employee to get the benefit, then the face amount cannot exceed $50,000. That is because anything more and it is no longer a tax-free benefit.

Second is disability insurance. Disability insurance is basically insuring your income. Making sure you keep getting paid something if you cannot work. The key to remember here is how the benefit is taxed. If you, the employer, pays for the premium, then the benefit becomes taxable to the employee. If they pay for the premium, then the benefit is tax-free.

These group insurances are a great way to get a potential tax deduction, while also providing yourself a way to get insurance and also keep your employees happy. This is a great benefit to consider in the growth stage.

• Financial plan for business owner/team: We come to another creative benefit that can be implemented in your business. Similar to what we are doing now. Talking about what should be implemented in the business, helping handle your financial decisions in your personal, and keeping you accountable.

A financial plan is an excellent tool for organizing, then executing different financial strategies.

The idea is the business pays for financial plans to a CFP(R) to get financial plans done for the leadership team.

The leadership team, then has a very valuable asset on their side. They can then have an organized plan for achieving their financial goals.

There is a benefit to the team and you can also potentially get a business tax benefit as well for providing that employee benefit.

• Exec compensation: Now we get to a benefit that should be considered if you are looking to provide a benefit above and beyond what you already have in place for the team.

An executive compensation plan is a plan designed to provide a benefit to executives. This is because typically the plan is funded by specialized tools and strategies for the leadership team.

This benefit can take many forms. It really depends on the business and the financial position of the business itself. You can build an executive compensation plan with stocks, investments, and cash value life insurance.

If you want to find a way to compensate your leadership team (yourself) on top of everything else you offer, then this is a solution to consider.

• Key person insurance: The next benefit that should be considered is another protection strategy. Unlike the other protection strategies that were implemented in the start-up stage, this strategy should be considered in the growth stage. That is key person insurance.

Keyperson insurance is life insurance that is paid for by the business to cover the life of a valuable employee. Often times that valuable employee is the business owner because if anything happened to them, then that would leave a big financial void in the business, so keyperson insurance is meant to cover that.

Now a key person doesn't just need to be a business owner. You could have an essential sales person for example, so it just depends on your situation.

This is one of the benefits that are unfortunately not deductible through the business. However, very often the cost is offset by the protection it offers the business.

• Charity giving: The final financial strategy that should be considered in the growth phase is charitable giving. This is not as much of a benefit as a business strategy.

One of the surest ways to get a potential deduction is by contributing to charity.

At this stage in the business as more income is earned, growth is increased, then the need to be tax efficient also increases.

Charitable giving is a strategy that should be considered to not only give back, but reduce some taxes too.

Mature stage (10+)

You have worked your butt off to get the business over all the humps and challenges that will inevitably be presented to you and your business. Now you grew your business successfully and you are at the point you can focus on maintaining as opposed to rapidly growing.

Your business has grown over the years and it has no sign of slowing down. Your business by now probably has a team, an established brand, and a reliable cash flow.

At this time the priorities shift slightly once again. We continue to focus on tax efficiencies, but with a few changes. By now you have probably implemented some group benefits like in the growth phase.

That means in this stage we can see what benefits we can bring to the founders and the leadership team. Because by now the success of the business can largely be attributed to some of their hard work.

In addition what should be focused on is beginning to design a continuation strategy. Making sure that the legacy you worked hard to create will continue with you being around or not.

• Profit share: We have already briefly talked about this strategy that should be considered at this stage in the business, but now it can be considered a little more seriously.

This is the profit sharing plan. There are several ways to actually set up a profit sharing plan. (401(k), Defined Benefit, etc.) The intention of the plan though can be defined pretty consistently and that is to share the profits and growth of the business with anyone who helps contribute towards it.

It can often times be one of the more lucrative benefits you can offer to you and your employees.

It can, however also eat into your bottom line. Make sure that at this stage if you offer it as a benefit that those who receive it are deserving.

- Deferred comp
This is another benefit we already touched on. However, it should be considered for different reasons in the mature stage of a business.

This plan should be considered because by now you will have had a leadership team you may want to keep around or reward for their great work.Deferred compensation is a good way to handle it.

This is a benefit that you can give your team, which will create a deferred compensation package that they will not need to claim on their taxes immediately and you can write off once they receive it.

A good opportunity on both fronts.

• Exec comp: Just like deferred compensation, executive compensation is another strategy that can be used to either put extra money away as a business owner or to reward valuable employees.

This plan is oftentimes funded by cash value life insurance, but can be funded by many different means. In other words, this plan you pay for some sort of investment beefit for your team.

• Real estate: This options is less a benefit and more of a strategy. Most business owners will get to a point in time where they make too much money to take advantage of many deductions. Real-estate helps with not only taxes, but also the scalability of the business.

At most points business owners desire to own their property, so that the margins are higher for the business and the expenses lower. If done correctly, then this can be one of the best investments that can be made.

The best course of action is to talk to an accountant to determine the best ways to be tax efficient around Real-Estate.

• Keeping personal and business separate: In this phase if done correctly, then this part shouldnt be a problem. However, in order to avoid the Business Owner Conundrum, then you need to make sure you find the correct balance of business and personal.

At this point in the business phases you have time and cash flow to balance between the two, so now is the time to get serious if you haven't.

Dont ignore taking care of yourself as well as your business.

• Estate planning: We now get into some of the strategies that should be considered in order to prepare for the continuation of your business either when you take a step back or if something were to happen to you.

The first thing to do is begin estate planning. Begin to look at the personal side and prepare things necessary to protect your hard earned interests in the business.

Consulting an estate attorney is essential at this point to get specific help. However, in general a will should be considered sooner than late. A succession plan should be designed, and any beneficiaries of plans should be confirmed to be correct.

From there, more advanced estate planning should be dependent on individual situations and you should consult an estate attorney before designing anything else.

• Cross purchase/entity purchase: This is a protection/estate planning strategy specifically for businesses. It is also arguably one of the best succession strategies as well.

The idea here is that the business owner purchases a life insurance plan on their successor and the successor purchases one on the business owner.

The idea behind this strategy if anything happens to either party, then you know that the business will continue forward. There will always be someone there running the business.

Exit stage (Within 5 years of wanting to leave)
We now talk about the final stage in the business cycle, which many people will not achieve and frankly, some will not want to reach. There are many business owners out there that were fortunate enough to have this option don't want to stop working in the business they worked so hard to build.

This stage is therefore optional and up to the individual person. This stage is for those owners that begin to see the light at the end of the tunnel and they want to plan for taking a step back.

In this stage it is time to begin looking at how you can fully capitalize on the business, how you can transfer ownership in a tax-efficient way, and you can make sure the legacy you built around the business will continue forward long after you are gone.

• Estate planning: This strategy is very similar to the mature phase, so we will not get into depth here.

You should begin this preparation as you look to take a step back by seeing where the ownership of the business and the sale of the business fits into your estate.

At this point why you need to get an estate attorney involved is ownership. Making sure your will is updated, but for those owners who are lucky enough to have an estate tax problem, you may want to consider some sort of trust. These are some of the more advanced estate planning strategies that should be considered.

• LTC: This is another strategy that should be considered, but will not be a direct benefit from the business. Long-term care is something that should be looked at around age 50 in order to protect the financial plan you constructed.

The idea of Long Term Care is insurance against the chance you need some sort of assisted living help as you begin to age. This care is immensely expensive, so to offset the risk of that happen, you put this insurance in place.

Generally speaking this should be looked at in the exit stage because you are planning for exiting the business, so this is once again one of the strategies that should be considered.

• Exit strategy: Now it is time to consider how you are going to capitalize on the business. It is time to look at how you want to exit the business and what is the most effective way to do this.

This is often time taken for granted and not planned appropriately. There should be a lot of thought that goes into how you want to exit your business and the best way to do that.

We will go over several strategies that might be considered in order to exit your business in the way you most desire.

• Succession planning: The first exit strategy we will look at is the succession plan. This is where your exit strategy consists of finding a successor. Someone that is willing to take the business owner from you.

Sometimes this succession consists of a buyout agreement or simply just a date when they assume responsibility. Either way, the idea behind this strategy is finding someone who you know will help you execute Succession Planning Done RIght.

Selecting a successor is always a challenge for entrepreneurs. There is always a challenge with letting the reigns go and having someone else take them over. That is why this can be a challenging exit strategy unless you have someone who takes a large amount of the business off your plate.

This strategy is more of a process than a quick execution. Keep in mind how you want it to go as you begin to execute.

• Buyout strategy: This falls under the scope of succession planning, but we will go into some strategies that can be used in the actual succession process. This is when the succession is dependent on the successor buying out the sucessee. There are several strategies that can be considered at that time.

The first is a revenue buyout. This is where when executed, the agreement is that the successor buys the successee out by using a percentage of the revenues the business brings in. This is one of the more favorable approaches due to its simplicity.

The second is a lump sum buyout. This is where the buyer obtains a lump sum that is paid in full or over a period of time to the seller to execute the buyout. Be careful of taxes with this strategy as they can add up quickly.

The third is a sellers note. This is a strategy where the seller becomes the lending institution for the buyer. This is where the seller “lends” the buyer the amount for buyout, then the buyer pays the seller a loan payment over a number of years.

This is one of the more popular strategies because not only does the seller get a return in the form of the interest from the loan, but often times the terms and agreements are much more simplified.

There are other strategies out there such as using an annuity, seed money, and others. However, which buyout strategy largely depends on the goals of both parties.

• Acquisition: The second strategy to look at is getting your business sold or acquired. This is one of the cleanest and quickest ways for a business owner to capitalize off the business asset they construct.

It is also, however, sometimes one of the more difficult ones. The reason is because of Finding The Right Buyer For Your Business can often time on its own be challenging. If you have a valuable enough business though, then it may not be a problem.

There are other factors that make this more difficult than not. That is the melding of company cultures, the dealmaking process, the legacy continuation, and others.

If you decide to go this route, then you should be prepared to wash your hands clean of the business and let what happens happens. That simplifies things significantly, but if you care about your employees and legacy, then that might be easier said than done.

• Business brokerage: We now get to a strategy that can help ease some of the challenge of selling the business and using the acquisition strategy. That is by hiring a business broker.

What this strategy does is it helps to take the burden of finding a buyer off your plate, so you can focus on preparing the business for sale.

LIke most brokerage services you should spend time finding the right firm to hire because that time researching will be paid in dividends if the right price and right buyer are found.

The downside of going this route is that you will need to compensate them for their time usually in the form of a finders fee or commission. That is why the front end research of finding a qualified and competent partner is that important, so you know the money you pay them will be well worth it.

• Franchising: The final exit strategy that can be uses is a form of acquisition. That is building a franchise model out of your business. Why would this be used? Think of finding many successors instead of one successor.

You worked your whole life to build a successful business, so you know how to, why not structure it so that you are teaching others how to have a successful business?

That is the idea at least of franchising to be used as an exit strategy.

Not the downside is that this can become complicated and expensive, so if you are in a rush this might not be the best move. However, for those that want to take a bit of a step back, but still be somewhat involved, this is a great strategy for you.

Business is one of the most difficult investments one can make in their lifetime. It is risky, challenging, and never the same. However, if you can get through those difficulties, then it can be one of the most rewarding ventures you ever take part in.

Always remember that you should keep your personal financial goals in mind and fund those as much as you can.

We hope this article helps to clear up some of the decisions and options that can be considered from a business.

If you ever have any questions or want to talk about some of these strategies, please don't hesitate to reach out to our firm. Centennial Financial Group, LLC is always willing to help where we can.

We look forward to it.

All investing involves risk, including the possible loss of principal. There is no assurance that any investment strategy will be successful.

The cost and availability of life insurance depend on factors such as age, health, and the type and amount of insurance purchased. Before implementing a strategy involving life insurance, it would be prudent to make sure that you are insurable by having the policy approved. As with most financial decisions, there are expenses associated with the purchase of life insurance. Policies commonly have mortality and expense charges. In addition, if a policy is surrendered prematurely, there may be surrender charges and income tax implications.

Some IRAs have contribution limitations and tax consequences for early withdrawals. For complete details, consult your tax advisor or attorney.

Converting from a traditional IRA to a Roth IRA is a taxable event.

To qualify for the tax-free and penalty-free withdrawal or earnings, a Roth IRA must be in place for at least five tax years, and the distribution must take place after age 59 ½ or due to death, disability, or a first-time home purchase (up to a $10,000 lifetime maximum). Depending on state law, Roth IRA distributions may be subject to state taxes.

For a comprehensive review of your personal situation, always consult with a tax or legal advisor. Neither Cetera Advisor Networks LLC nor any of its representatives may give legal or tax advice.

This material was developed for general information and should not be considered a solicitation for the purchase or sale of any security. The content is developed from sources believed to be providing accurate information.  The information is by no means intended to be complete or all-inclusive and we make no representation as to its completeness or accuracy.