If you -- like MDY's Galina Datskovsky -- despair of finding a financial expert who isn't motivated by visions of big sales, you might consider a consultation with a fee-only financial planner who sells no investment products and earns no commission income. For a list of fee-only planners in your area, contact the National Association of Personal Financial Advisors (708-537-7722).
PREPARE YOUR ESTATE
This piece of the financial-planning puzzle is no fun. But failure to prepare for the inevitable leaves an entrepreneur's beneficiaries facing estate taxes that can be as high as 60% -- with no alternatives beyond selling or dismantling the business simply to pay off the tax man.
"I hear all kinds of excuses from business owners who don't want to get involved in estate planning," confides Joshua Rubenstein, a partner in the estate and trust department of New York City law firm Rosenman & Colin. "They tell me their companies are new, they're start-ups, they're not worth anything -- or that the company is too big and too valuable and it's too late to accomplish anything. But both attitudes are wrong. Wherever you are in your company's growth, the best time to start planning is right now."
Kenneth Brier, an estate-planning partner in the Boston law firm of Powers & Hall, recommends that as you form your plan you should --
Think globally. "You can't be constrained by cut-and-paste planning principles or by the notion that your personal estate and corporate estate plans are different and separate. Look for an estate planner who's willing to be innovative." When one of Brier's clients, the owner of an $18-million corporation, wanted a way to pass his business on to his children while minimizing gift and estate taxes, Brier recommended that the children set up their own company, to which their father could divert business opportunities. "We didn't pay a dime of taxes on all that transfer of value," he notes.
Plan succession or face extinction. A comprehensive succession plan should anticipate management and family controversies.
Deal with liquidity issues. "If you leave your estate with a cash drought because you haven't purchased adequate insurance, your beneficiaries will have no choice but to liquidate your company when the IRS comes calling nine months after your death."
Divide and conquer. Because the IRS treats "minority-stock transfers" favorably, you can reduce the size of your taxable estate by making gifts of stock shares while you are alive.
"Many corporate law firms do not employ trust-and-estate specialists -- and the consequences can be costly for entrepreneurs if they simply rely on the advice of a partner who remembers drafting a will back in law school," Rubenstein says. For a listing of specialists in your area, send a written request to the American College of Trust and Estate Counsel at 3415 South Sepulveda Blvd., Suite 460, Los Angeles, CA 90034; phone 310-398-1888. George C. Shattuck's useful guide, Estate Planning for Small Business Owners (Prentice Hall, 1993, $19.95) will prepare you to sit down with a qualified estate planner.
INVEST STRATEGICALLY
Coherence. Logic. Discipline.
Sound a little too stodgy to be the bywords of your ambitiously high-flying investment strategy?
Well, this is reality. Effective investing -- especially for the all-too-busy entrepreneur -- depends on these three essentials:
Coherence: Your investments must complement one another's risks and payoff potential.
Logic: A well-researched rationale must support each interlocking investment.
Discipline: You must adhere to your long-term goals, and you mustn't be distracted by the whims of the economic marketplace.
Your strategy ought to look like a pyramid, with your company as its base. After all, most of your money will be in your business.
You'll want to make other investments as soon as your family's take-home pay exceeds its living expenses. At first that progression will focus on securing such essentials as your retirement plan. Many experts recommend starting with mutual funds and money-market accounts with investment profiles that complement your ownership stake in your company.
It's not necessary to pay fees for a stockbroker or banker to handle those mutual-fund investments. You can find comprehensive lists of no-load -- that is, no-fee -- mutual funds in magazines such as Forbes, Money, and Smart Money.
For Moerdler and Datskovsky, who are ready to move to the second tier of their investment pyramid, short-term activities will center on funding a retirement plan, saving more aggressively for their children's college education, and boosting their emergency cash reserves.
Your second tier depends on your family profile, the stage your business is at, and your personal finances. If you've already set aside an emergency money-market account that covers three to six months' worth of living expenses, don't add to what is, after all, a relatively low-paying investment. If you don't have kids, obviously, you've saved yourself from a very large investment concern. But if you are in your forties and still haven't prepared for retirement, making up for lost time should consume most of your investment activity.
When you attain the next level of the pyramid, you'll have taken care of all the fundamentals, and you'll start putting cash into the financial markets. You'll probably want help from a stockbroker to purchase individual bonds or stocks, but find someone who shares your disciplined approach. You must not withdraw savings from your lower-tiered investments simply to fund your market plays.
As Adams advised MDY's owners, municipal bonds provide tax-free earnings, safety, liquidity, and a predictable income stream -- all features that nicely complement the investment characteristics of a fast-growth company.
