When you've finally accumulated a sizable stake in municipal bonds, you will be ready to climb to the top of the investment pyramid. If you've been well disciplined, you'll be in an excellent position to branch out into such risky but potentially lucrative investments as the stock market and real estate.
Choose investments that match your expertise and attention span. Have some fun. But invest only what you can afford to lose. As Adams explains, "You don't ever want to need the money you've got in the stock market and have to go out and sell shares at a fire sale."
The American Association of Individual Investors (312-280-0170) offers resources targeted at both fledgling and sophisticated investors.
PLAN FOR RETIREMENT
Typical entrepreneurs are so preoccupied with ramping up the value of their enterprises that when it comes to an essential issue like retirement planning, they're like the cobbler's children without shoes," warns Arthur Warren, a retirement-strategy specialist who owns his company, Benefits Advisors of New England, in Franklin, Mass.
If you've procrastinated on this issue, you should realize that entrepreneurs have much more control over retirement planning than most people do, since employees' options are limited by what their employers offer. Furthermore, Warren emphasizes, "given the fact that we face the highest personal marginal tax rates that have existed in the United States since the early 1980s, any pretax method of capital accumulation is something you simply have to do."
It's possible that one day you'll wind up spending part of your retirement savings on a boat or to pay for your baby's college tuition, but when you see how quickly your tax-deferred retirement-savings account grows (compared with other investments that are subject to ordinary or capital-gains taxes), you'll recognize its essential value to your overall financial plan.
Because the tax rules, administrative issues, and investment decisions involved in retirement planning are quite complicated, this is not a do-it-yourself issue. To learn more about your options, before you spend money on a consultation with a retirement planner or an accountant, you might want to boost your personal knowledge with a very good introductory videotape: Solving the Retirement Puzzle (Retirement Planning Associates, 800-546-5406, $19.95).
SELECT GOOD ADVISERS
As the owner of a business, you'll have financial advisers of all stripes hounding you with get-rich-quick schemes they've devised. Start running.
Do you need an expert? Why consult a financial planner and an insurance broker and an estate planner and a retirement planner and a stockbroker and a tax lawyer? If you have the time and the interest, you can learn a lot from investment newsletters from organizations like the American Association of Individual Investors and such publications as the Wall Street Journal, Barron's, and Forbes. You can also stay up-to-the-minute with the changing financial and economic news by using your computer to tap into a range of investor databases. Your corporate accounting and legal advisers may be able to help, too.
The adviser you select should understand your goals. "Sure, I know about a small-business owner's needs," is a statement you must challenge. Your adviser should know exactly how those needs are different from other people's. Trust your instincts. You will require special attention in order to develop a plan that is sophisticated enough to achieve personal and corporate goals.
Investigate educational credentials. These days new investment instruments flash on and off the scene. The best financial professionals know they need to continually upgrade their training to stay on top of frenetically paced market developments. Look for a professional who is well versed and uses state-of-the-art technological support to stay informed about changes.
Seek recommendations from other entrepreneurs. It's fine to ask your banker and accountant for referrals of qualified financial advisers, but you also need proof that those advisers know how to work with business owners. Check references!
INSURE YOUR FUTURE
The glue that holds your family's financial future in place is a well-conceived insurance strategy. Entrepreneurs have insurance requirements in addition to the obvious need for medical, property, and casualty coverage. Here's a checklist of the minimal coverage to ensure your family's -- and your company's -- continued financial well-being:
Personal disability insurance: It makes sense for business owners to purchase the maximum coverage -- usually 60% of salary.
Family-owned life insurance: In the event of your death, your survivors will appreciate having insurance cover estate taxes, your home mortgage, and other expenses.
Key-man insurance: Your corporation should own such a policy to help stem cash-flow losses in the event of a management transition.
Insurance to support a buy-sell agreement: If you have partners or an outside potential buyer, the partners, the buyer, or the company itself should purchase such a policy.
Long-term-care coverage: For a top-of-the-line policy, expect to pay up to $10,000 per couple. If you or your parents are well into their sixties, it could be worth the expense.
Most business owners, especially the founders of young companies, tend to skimp on insurance coverage or forgo vital policies entirely. Although MDY's owners each have nearly $1 million worth of life insurance for their family's protection, financial adviser Adams urged them to purchase an equivalent level of key-man coverage for the company. Datskovsky's parents are near retirement age, so Adams recommended a long-term-care policy as well.
As your family matures, your investment portfolio grows, and your company becomes more valuable, your insurance coverage should reflect those changes. It makes sense to involve your accountant and estate-planning lawyer in periodic reviews of your insurance package.
