Plan for Succession and Retirement Now
If you own a music retail business, you may well follow a do-it-now philosophy—which is, of course, necessary to keep things running. Still, you also need to think about tomorrow, which means taking action on your retirement and business succession plans.
Fortunately, you’ve got some attractive options. For example, you could choose a retirement plan that offers at least two key advantages: potential tax-deferred earnings and a wide array of investment options. Plus, some retirement plans let you make tax-deductible contributions.
In selecting a retirement plan, you’ll need to consider several factors, including the size of your business and your number of employees. If your business has no full-time employees other than you and your spouse, you may consider a Simplified Employee Pension (SEP) plan or an owner-only 401(k)—sometimes known as an individual or solo 401(k). Or, if your goal is to contribute as much as possible, you may want to consider an owner-only defined benefit plan.
If you have employees, investigate a Simple IRA or even a 401(k) plan. Your financial advisor, working with plan design professionals and your tax advisor, can help you analyze the options and choose the plan that fits with your combined personal and business goals.
Now, let’s turn to business succession plans. Ultimately, your choice of a succession strategy will depend on many factors, such as the value of your business, whether you need the proceeds from the sale and how well your business can continue without you. If your goal is to keep the business within the family, you’ll need to consider how much control you wish to retain (and for how long), whether you wish to gift or sell, how you balance your estate among your heirs, and who can reasonably succeed you in running the business.
There are many succession planning strategies, including an outright sale to a third party; a sale to your employees or management (at once or over time); or the transfer of your music retail business within your family through sales or gifts during your life, at your death or any combination thereof.
Many succession plans include a buy-sell agreement. Upon your death, such an agreement could let a business partner or a key employee buy the business from your surviving spouse or whoever inherits your business interests. To provide the funds needed for the partner or employee—or even one of your children—to purchase the business, an insurance policy could be purchased.
Your estate plan—including your will and any living trust—should address what happens with the business in case you still own part or all of it at your death. The best-laid succession plans may go awry if the unexpected occurs.
All these business succession options can be complex, so before choosing any of them, you'll need to consult with your legal and financial advisors. Whether it’s selecting a retirement plan or a succession strategy, you’ll want to take your time and make the choices that are appropriate for your individual situation.
You work extremely hard to run your business. Do whatever it takes to help maximize your benefits from it.
Jeff Ponte is a financial advisor with Edward Jones and previously served as vice president of sales with Mel Bay Publications. He can be reached at Jeffrey.Ponte@edwardjones.com or 855-581-1696.