Small businesses are built with their owners' sweat and diligence but a new survey shows they are giving little thought to their business' futures. The survey released last month and sponsored by Papalia Financial, shows that 85 percent of the respondents acknowledge that they are not content with their current financial planning according to their prepared statement. 200 small business owners in Connecticut, New Jersey, New York, and Pennsylvania participated in this survey.
âIt's surprising and even a bit alarming to find so many small business owners taking such a casual, shortsighted approach to plotting their future,â said Mark Papalia, president and founder of Papalia Financial in a prepared statement. âWhen you think about how much time and effort these entrepreneurs have invested in their enterprises, you would expect them to have a more structured, formalized plan to preserve their assets for the future.â
Business and succession planning is important but 38 percent said they âdo not have a business succession plan or long-term exit strategyâ set for their business. 30 percent said that their plan âis in my head only and has not been fully documentedâ while another 10 percent acknowledged that their plan âis not fully developedâ and that they âshould have a real plan,â according to their prepared statement.
Questions about business financing found that 26 percent of those polled preferred âhome equity loansâ over other financing options.
âMost small business owners should not be exposing their personal assets in this manner, as it creates unnecessary risk and liability concerns,â said Papalia in the Pittsburgh Business Times. âFar better options would be to utilize a long-term corporate loan, based on expected capital expenditure needs over the next five years, along with a corporate line of credit to meet short-term fluctuations in cash flow.â
Questions concerning succession of ownership found that about 25 percent expect to pass their businesses onto family members.
Papalia said, âA family business transfer or pass-along may be comforting and expedient course of action for small business owners, but again it may not be in the best interest of either business owners, who may need to maximize the value of their business to retire comfortably or their children, who may lack the necessary experience to run the business successfully.â
Effective business planning will yield short and long-term benefits for businesses and owners. Setting up a buy/sell agreement funded by life insurance establishes a value for your enterprise in the event of an owner's death. Estate planning is a good path to follow to maintain succession of your business. Personal expenses such as life and disability insurance premiums can be paid by the business and receive positive tax treatment also. The premiums for salary continuation plans may also be a deductible company expense. The premiums you pay for your employees' compensation packages are deductible company expenses. Contributions to employee pension or profit-sharing plans are tax deductible and most importantly, will help you keep critical employees.