10 Easy Steps – Starting a Business Owner’s Financial Plan

Business owners can be like running backs in football – put your head down and go!  However, there are many obstacles – or defenses – in the way of sustained financial success.  To transition business wealth to personal retirement assets, consider the preliminary steps presented below.

Net Worth and Cash Flow Statements –  Constructing a comprehensive financial plan should be the ultimate goal.  Start out with a few simple reports to facilitate the initial assessment.

1 – Net Worth Statement – Compile a comprehensive net worth statement that shows all assets owned with investments presented separately.  This reveals current investment assets available to provide retirement income and whether they are tax-deferred or not.

2 – Retirement Cash Flow – Where will cash come from in retirement and will there be sufficient assets to keep up the desired lifestyle?  Start with the investment assets shown in step one above and then, for each year until passing, project additions, earnings, taxes and withdrawals to arrive at an ending portfolio value for each year.

Investment Analysis – An investment portfolio must be constructed using sound investment principles.

3 – Allocation – The first step in constructing an appropriate portfolio should be to determine the appropriate stock-to-bond allocation after considering the investor’s risk tolerance.

4 Diversify – To mitigate investment risk, a low cost portfolio invested across multiple asset classes should be considered.

Estate Planning – A properly-prepared estate plan details how asset ownership will be transferred and taxes and court costs will be mitigated.

5 – Up-to-Date Documentation – A will, revocable trust, powers of attorney, health care directives and carefully crafted beneficiary designations should be in place.  These documents should always be updated as an owner’s financial and business pictures change and new laws are enacted.  Business owners should have a buy-sell agreement to memorialize how business ownership will transition under certain circumstances.

6 –  Mitigating Taxes – Do the current documents properly mitigate income and estate taxes?  The federal estate tax exemption is now “portable” between spouses, which permits a more simple document structure for wills and trusts that can boost income tax benefits.

Income Tax Planning – Income taxes can take a big bite out of a business owner’s wealth and materially impact what is passed on to future generations.

7 – Taxes on Investments – Tax loss harvesting should be employed as part of an overall investment portfolio strategy.  Also, producing long-term capital gain treatment whenever possible is important in preserving wealth.

8 – Business Income Taxes – C corporations, S corporation and LLCs all present interesting income tax savings opportunities especially with possible tax reform on the horizon.  Businesses and related assets such as business real estate should be structured to maximize savings opportunities.

Business Succession Planning – Properly planning a business transfer is critical so that it survives and the new owners’ chances for success are enhanced.

9 – Succession Strategies – All possible succession strategies should be examined: family, key employees and third parties.  This should be coordinated closely with the estate and financial plan work.

10 – Buyer’s Due Diligence – Any buyer will want to perform an extensive review of the business, its records, assets and processes.  Business owners should do “buyer’s due diligence” long before an actual buyer does it.  Correcting deficiencies can boost the value of a business and lower the seller’s risk before and after the sale.

A business owner should consider the above planning steps to begin the process of transitioning business wealth to personal use.  Remember, a good running back “sees the whole field” and plans where to go to avoid problems!


Michael C. Foltz, JD, CPA, CFP® is a BDF founding principal and founder of our Business Owner Team with an extensive background in law, tax and estate planning.  Mike shares his deep estate planning expertise by following the ever-changing federal and state estate tax laws and preparing education summaries for clients and team members.  Recognized by Chicago magazine as a Five Star Wealth Manager, Mike has given numerous presentations on estate planning to BDF clients and professional organizations such as the Exit Planning Institute. Publications such as Inc. magazine and the Wall Street Journal have featured his insights into estate planning, and he has contributed to an estate-planning publication for Commerce Clearing House.