“You must learn from the mistakes of others. You can’t possibly live long enough to make them all yourself.” – Samuel Levenson
In my 25 years of working with business owners and entrepreneurial minded individuals, virtually every person I meet is missing all or most of these important issues in their business. While every great entrepreneur has wins along the way, often they don’t have the time, interest, or inclination to answer the question: what am I missing or what are my other professional advisors missing? As part of a blog series, I intend to dive deeper into the following 10 common blind spots to help you learn from others’ mistakes. I hope this series allows you to better mind your business.
1. Corporate Structure
Many may tell you that your corporation, LLC, or partnership structure will protect you from lawsuits. This is not always the case and depending on the situation, that structure may not protect you at all. Your decision as to your corporate structure may also impact your taxes. For example, some structures allow you to save potentially substantial social security taxes, where the others cause you to pay those taxes no matter what.*
2. Liquidation Event
In speaking to countless business owners, I have realized that they have not thought through the real and practical economics behind selling their business and turning those dollars into an income stream. Therefore, they have no idea of the substantial pay cut they may have to take in turning their business assets into a financial asset.
3. Saving and Investing the Right Amount
Once the business is on good financial footing, every good business owner should think about saving and building wealth outside the business. Since they don’t know the ideal amount to save, they always lack confidence in this regard.
4. Entrepreneurial Assets vs. Financial Assets
How investment advisors and other financial professionals define risk is often worlds apart worlds apart from how entrepreneurs define risk. There is a substantial disconnect when discussing risk because risk to a financial advisor is defined one-way whereas the entrepreneur views and measures risk in a completely different way.
5. Asset Protection
There really is no such thing as bulletproof asset protection. Rather, the best asset protection is determined by the number of barriers that you put between others and your assets and the difficulty with which it takes to get through each barrier.
6. Retirement Accounts
Business owners might be in a tax-deferral trap if they are contributing to a retirement account. In addition, what is almost always more valuable to a business owner than deferring taxes is having access and control to their money and/or being able to bank on their own terms.
7. Personal Life Insurance
Although life insurance should be an integral part of an entrepreneur’s planning, for a variety of reasons, be it the lack of time, knowledge, or trust in others to guide them, this decision is often put on the back burner. In addition, life insurance on a business owners’ spouse is rarely given the attention it deserves.
8. Succession & Buy-Sell Planning
Having a written succession plan in place is a crucial component of your business plan. In most cases I've seen, there is not a written buy-sell agreement and in the majority of the remaining situations, there may be the agreement but no funding mechanism. Conversely, there could be a funding mechanism with no agreement.
9. Business Life Insurance
Business owners are often confused on the types and uses of business life insurance. Many cases, owners are not clear on the difference between key-person insurance or buy-sell insurance.
10. Accelerating Mortgage Debt
While being debt-free is a great goal and we want all our clients to be debt-free, paying down a mortgage in an inefficient manner could put you in a cash or cash flow bind in the future. Too many business owners confuse the result of having no mortgage with a risky and inefficient way to get that result.
Are any of these your blind spots? If so, it's time to mind your business. Learn from my 25 years’ experience with business owners and think through the financial goals for your business. Stay tuned for an in-depth look at each of these blind spots in my upcoming blog series.
Mind Your Business: 10 of the Most Common Business Owner Blind Spots
