Mastering Business and Wealth: A Guide for Business Owners
Owning a business means juggling multiple priorities while ensuring your financial health and long-term goals stay on track. This guide outlines key planning considerations and actionable strategies to help you optimize your business, protect your wealth, and prepare for the future.
1. Tax Planning Opportunities
Tax planning isn’t about which offshore bank account to use, but instead, it's about leveraging the tax code to your advantage. Here are areas to consider:
Prepare for the TCJA Sunset: The Tax Cuts and Jobs Act (TCJA) of 2017 implemented significant tax changes that are set to expire at the end of 2025. This impending sunset means taxpayers, especially business owners and high-income individuals, need to proactively plan their financial strategies.
Balance Income Acceleration and Deferral: Decide whether to defer income into future years or accelerate it into the current year, depending on cash flow needs and tax rates. This includes bunching itemized deductions or potential charitable giving strategies in years with higher income (CRUT or DAF Funding).
Consider recognizing additional income in 2024-2025 while lower tax rates remain in effect. Potential strategies include exercising stock options, taking capital gains, converting traditional IRAs to Roth IRAs, or scheduling consulting or bonus payments before year-end.
Evaluate whether deferring income makes sense based on projected future tax brackets, expected personal income changes, and potential business expansion plans.
Take Advantage of Bonus Depreciation: Bonus depreciation phases out in coming years. If you’re purchasing large assets, act now to claim bigger deductions. Current schedule:
2023: 80% bonus depreciation
2024: 60% bonus depreciation
2025: 40% bonus depreciation
2026: 20% bonus depreciation
Retirement Plans for Business Owners: Contributing to retirement accounts like SEP-IRAs, solo 401(k)s, or defined benefit plans reduces taxable income while building your savings.
SEP-IRA: Allows up to 25% of compensation or $66,000 (2023 limit)
Solo 401(k): Potentially higher contribution limits and Roth 401k buckets
Defined Benefit Plans: Significant tax-deferred contributions for high-income individuals. Supersize your retirement savings.
Tax planning is one of the most vital things that a business owner can do because every decision you make has something to do with taxes. The goal is to keep more in your pocket to invest in your business or enjoy and give less to the government. Every successful business owner needs a tax plan in place and needs to review it throughout the year.
2. Risk and Asset Protection
Protecting your business and personal wealth from risks is essential for long-term stability. These are often the easiest to update and resolve and the most important. Unfortunately, they will not be in place until it is too late.
Choose the Right Entity Structure: The structure of your business affects your liability exposure, tax obligations, and growth potential. Regularly review to ensure it still meets your needs. At the end of the day, your entity—LLC, S-corp, or C-corp—should provide liability protection and align with your tax goals.
Adequate Insurance Coverage Beyond the basics, evaluate specialized coverage like:
Key Person Insurance: Protect against the financial impact of losing a critical team member.
Umbrella Liability Insurance: Additional coverage to protect against lawsuits exceeding standard policy limits.
Cyber Liability Insurance: Essential for protecting against data breaches and cyber threats.
Buy-Sell Agreements: Having an agreement in place to ensure your family can receive liquidity from the business if you pass away unexpectedly. This ensures they are not stuck with trying to run or sell your business.
Legal Safeguards
Review and update contracts regularly to close any gaps.
Protect intellectual property with patents, trademarks, or copyrights.
Ensure non-compete and confidentiality agreements are in place for employees and partners.
Disaster Recovery Planning: Develop a contingency plan for operational disruptions, such as natural disasters, economic downturns, or technological failures. This should include data backups, emergency funding, and communication protocols.
3. Employee Benefits and Retention
Retaining top talent is key to business success. Well-structured benefits attract and keep high-performing employees. The employees are often the lifeblood of the business, and maintaining quality employees is one of the hardest tasks employers have to solve.
Offer Competitive Benefits: Include modern options like student loan repayment assistance, wellness programs, and flexible work arrangements. Comprehensive health benefits, including mental health support, are increasingly valued by employees. Review what would help your employees specifically and focus on those.
Incentive Plans:
Profit-Sharing Plans: Reward employees based on business success, tying their efforts directly to company outcomes.
Stock Options: Give employees a stake in the company’s future growth, promoting loyalty and long-term commitment.
Retention Bonuses: Provide bonuses for employees who stay through critical business milestones or transitions.
Focus on Team Development:
Ongoing Education: Subsidize advanced training, certifications, or degrees relevant to their roles.
Career Pathing: Create clear opportunities for advancement within your organization to motivate employees.
Leadership Development Programs: Prepare high-potential employees for leadership roles through mentoring and structured training.
Evaluate and Evolve Benefits Regularly Conduct employee surveys or hold feedback sessions to understand what benefits matter most. Update your offerings to stay competitive and meet the changing needs of your workforce.
4. Business Value Optimization
Your business is likely your largest asset. 80% of most business owner’s net worth is in their business. Businesses are also often more illiquid than real estate, making it one of the most illiquid assets you can own. That being said, you, as the business owner, have an extreme amount of control as it relates to its growth and value.
Conduct a Value Gap Analysis: Determine the difference between your business’s current value and its potential value. Focus on areas where improvement will bring the highest returns. Review factors such as revenue growth, profitability, and customer concentration. Pinpoint gaps where investments in operations, marketing, or technology could significantly enhance value.
Key Value Drivers
Systems and Processes: Standardize operations to reduce inefficiencies and create consistency in output. This makes the business easier to scale and more attractive to buyers. Have these written down and easy to follow.
Recurring Revenue: Build stable income streams through subscription models, service agreements, or long-term contracts. Predictable revenue increases the business’s valuation.
Team Independence: Develop leadership within your team so the business can operate without relying heavily on you. Empower managers, document workflows, and delegate decision-making authority. Ask yourself: “What would happen if I left for a month and did not answer anyone’s messages?”
Exit Readiness: Exit planning is good business planning. If you run your business like you are preparing for a third party to break it down to its true value, then you will run a better business. This will increase its value and ultimately increase its revenue.
Owner Dependency: Identify tasks you currently handle and start transitioning them to other team members. This shift demonstrates that the business can thrive without you.
Process Documentation: Create a thorough operations manual that includes step-by-step guides for key processes. This reduces risk for prospective buyers.
Financial Cleanliness: Maintain accurate and transparent financial records. Regularly reconcile accounts, separate personal and business finances, and address any tax or legal issues before they become obstacles.
Customer and Vendor Relationships: Diversify your client base to avoid over-reliance on a few key accounts, and solidify contracts with vendors to ensure continuity during a transition. The more concentrated your customer base is, then the less attractive your business looks.
5. Succession and Exit Planning
Transitioning out of your business requires forethought to ensure financial and operational success. This decision should be planned over time. One wrong move can result in a difference of hundreds of thousands of dollars.
Ownership Transition Options: Explore various exit strategies, such as internal buyouts, ESOPs, transitioning ownership to family, or selling to a third party. Identify which option aligns with your personal goals and the business’s strengths. Walk through each of them even if you have not heard of or considered them in the past.
Timing Your Exit: Plan your exit well in advance. Again, exit planning is business planning. The sooner you start to run your business like you are preparing to sell, the better your business will perform. A gradual transition often yields better results than a sudden sale, as it allows for strategic adjustments to maximize value.
Exit planning is business planning. Even if you never want to sell your business.
Minimizing Taxes on the Sale: Work with professionals to structure the sale in a tax-efficient way. Building a tax plan that aligns with your goals will ensure you save as much as possible when exiting the business. Again, the more you can keep in your pocket, the more flexibility you will have in life.
6. Personal Wealth Considerations
Don’t let your personal finances take a backseat to business priorities. Build a strong financial foundation outside of your business.
Diversify Your Income Reduce risk by investing in a variety of income streams outside your business.
Real Estate Investments: Generate rental income and long-term appreciation.
Dividend-Paying Stocks: Build a steady income stream while benefiting from capital growth. Truly passive income.
Alternative Investments: Consider private equity, venture funds, or other non-traditional investments to spread risk and increase potential returns.
Plan for Efficient Wealth Transfer: Use estate planning tools to avoid unnecessary taxes and legal complications.
Family Trusts: Manage and protect assets while minimizing estate taxes and ensuring smooth intergenerational wealth transfer.
Lifetime Gifting: Take advantage of annual gift tax exclusions to transfer wealth to heirs or charitable organizations during your lifetime.
Succession Strategies: Coordinate your personal estate plan with your business succession plan to avoid gaps and ensure consistency.
Tax-Efficient Investments: Work with a financial advisor to structure investments in a way that minimizes tax impact.
Municipal Bonds: Generate tax-free income, especially valuable for high-income earners.
Roth IRA Conversions: Pay taxes now to enjoy tax-free growth and withdrawals in the future.
Tax-Loss Harvesting: Offset gains with losses to reduce overall tax liabilities while maintaining portfolio performance. Including direct indexing accounts that can harvest losses on a daily basis without sacrificing growth.
Build a Safety Net: Maintain liquid assets to cover unexpected expenses or take advantage of opportunities. This could include:
A robust emergency fund (6-12 months of personal expenses).
Short-term, low-risk investments for easy access to cash.
Collaborate with Professionals: Engage with a team of financial advisors, estate planners, and tax professionals to create a comprehensive plan tailored to your goals. Their expertise can help you navigate complex situations and maximize your wealth’s potential. Allow them to focus on what they specialize in while you run your business and focus on building its value.
#1 Recommendation: Take Action
You’ve worked hard to build your business—now it’s time to make your efforts count. Strategic planning is the difference between maintaining the status quo and unlocking your full potential. From securing your business’s value to safeguarding your personal wealth, the choices you make today will shape your future.
Don’t wait for the perfect moment; start making informed decisions now. Even the small steps help. Whether you’re looking to maximize profits, protect your assets, or prepare for a seamless exit, having the right guidance is essential.
Your business and wealth deserve a plan as ambitious as your goals. Whether you’re ready to grow, protect, or transition.
About the author: Finn Price, CPFA, CEPA, is a business owner and wealth manager at Railroad Investment Group. He helps successful entrepreneurs & individuals with concentrated stock positions in their 30s, 40s and 50s build, organize, protect and transfer their wealth.
Note: this article is general guidance and education, not advice. Consult your money person or your attorney for financial, tax, and legal advice specific to your situation.
