THE BUSINESS OWNER’S PLAYBOOK · 2011-05-02 · of running your own business. ... personal assets at risk. Talk to your accountant about a wise amount of personal assets to use,

THE BUSINESS OWNER’S PLAYBOOK®

A guide to protecting your business, growing your assetsand planning for your future.

Second Edition

Dear Reader:

Whether you are thinking about building your dream into a business reality or you havealready worked hard to get there, The Hartford is ready to help you achieve your goals.

The Hartford knows business owners – more than one million of them are our customers – and we are committed to providing them with a broad portfolio of strategies, including workers’ compensation, liability, property, auto, group disability, group life, professional andemployee liability insurance, and 401(k) plans. We also offer individual life insurance for succession planning for entrepreneurs.

The Business Owner’s Playbook® will help you identify the important issues facing your business and make it easier for you to address them so you have more time to run your company.

This guide also suggests conversation starters for your trusted advisors – attorneys, accountants,insurance agents, and financial professionals – who can provide specific guidance for yourunique circumstances.

Whether you have just opened your doors, are established and growing, or are thinking of selling your business or passing it on to your heirs, this guide will help with practical examples, advice and solutions.

We have worked hard to make this a valuable tool because we know you work hard for yourcompany, your employees and your family. I hope The Business Owner’s Playbook helps you on your journey to success.

Sincerely,

Liam McGee Chairman, President and Chief Executive OfficerThe Hartford Financial Services Group, Inc.

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TABLE OF CONTENTS

The Emerging Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Finance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Compensation & Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Planning For Your Life and For Your Future . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Your World . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

The Growing Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Finance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16


Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20


Your World . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

The Transitioning Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

Finance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30


Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33


Your World . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

Additional InformationStructuring Your Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

Business Resources on the Web . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

Conversation StartersThis symbol at the beginning of each section indicates the key questions you shouldbe asking yourself – and your advisors.

These materials provide general information, and should not be construed as specific financial,insurance, tax, legal, or accounting advice. You should consult a qualified advisor for individualguidance in these matters. Please see back cover for additional important information.

Consider ThisThis symbol indicates important suggestions to help you manage your business and personal financial picture.$

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Congratulations! You’vemade one of the most important –and one of the most difficult –decisions of your life: to pursueyour business dream. This guide is intended to help you to starthaving the right conversations –with the right advisors – and helpyou increase the odds of success.

No doubt there are many ques-tions at this point. Why did youstart your business? You may haveseen an opportunity to makemoney by serving a market withpotential that is not being servedadequately by others. Or, it simplyfulfills a dream. Whatever the rea-son, now is the time to ask theseimportant questions. And, it’s alsothe right time to find the rightexperts to help guide you alongthis journey.

These questions will help youdetermine the types of advisorsyou’ll need.

IMPORTANT QUESTIONS▲ What needs to happen before

your business will be strong enough to give you a decent living, and how long will it take to get to that point?

▲ How much money does your business need to operate, and where will it come from, before the business is self-sufficient?

▲ Do you need financing, and where will you get it?

▲ Can you operate the business alone or do you need a partner or employees?

▲ What compensation and bene-fits must you offer to attract the employees you need?

Your answers to these questionswill help you plan for short- andlonger-term needs – for your business and your own personalfinance goals. While advisors areimportant to help with businessfinance, they’re equally (or more)vital to your own personal finan-cial health.

The right conversations with theright advisors are crucial at thisstage. They can help ensure thatyou keep the right focus on yourpersonal and business goals and success.

THE EMERGING COMPANY The Topic of Conversation: Important Questions

and Steps to Consider as You Start Out

Small businessesmake up 97.7% of all

U.S. businesses.

Small Business:Companies (firms) consisting of 100 employees or less

▲ Sole-proprietor (21.7 million)

▲ Micro, up to 9 employees (4.7 million)

▲ 10 - 19 employees (.7 million)

▲ 20 - 99 employees (.5 million)

Source: U.S. Census Bureau:Statistics of U.S. Businesses, 2006.

(Most recent data available)

Questions. You may have many in your head as you embark on the journey of running your own business. Whether you’re thinking about funding or compensation,

taxes or insurance, this section will help you find answers and identify the types of advisors with whom to have these conversations.

Small Business

partners’ liability is based on the percentage oftheir investment; the general partner(s) bearsremainder of the liability and is responsible forday-to-day operations.

Limited Liability PartnershipThe partner is limited as to liability dependingon state law. Some modern statutes providethat a partner is not liable for tort or contractsalthough a partner cannot escape personal lia-bility for his own fraud or other malfeasance.

CorporationA corporation is a legal entity with a chartergranted by the state in which it is headquar-tered. It can sell shares of stock to raise money;shareholders become part-owners based on thesize of their investments.

Limited Liability CompanyA hybrid entity that shields owners’ personalassets from business liability, but allows thereturns they earn to be taxed once, as personalincome.

You’ll want to speak to an advisor – especiallyan attorney or accountant – when determiningyour business structure. Also remember thatyou’re not locked into one business entity forthe life of your business.

Calculate the cost of your start-up, for yourself and the business.Emerging businesses might not see income fora while, and you, as owner, might not be ableto write yourself a paycheck right away. It’s crit-ical to determine your essentials – what thingsyou can give up in the short term (e.g., vacations)and what things you absolutely need, both foryour life and for the business.

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THE EMERGING COMPANYFinance

A business owner’s first consideration is usuallyvery straightforward: What type of company do you want to create? Are you in business byyourself, or do you have co-owners? Are thesepartners in the family? Structuring your companywill have a significant impact on your taxes,planned financing, compensation, insurance, etc.

Different company structures(more detailed information on these can be found onpage 38)

Sole Proprietorship Individual or married couple. Business income is taxed as personal income and is subject to self-employment tax.

General PartnershipTwo or more owners (who aren’t a married couple). Set-up costs are minimal, with little or nostate fees or documentation, and business pro-ceeds are taxed as the partners’ personal income.

Limited PartnershipSimilar to a general partnership, but has twoclasses of partner: limited and general. Limited

▲ How do I best structure my company for success?

▲ How do I estimate start-up expenses and identify sources of funding?

▲ Do I need to separate personal and business finances to limit personal risk, including legal and tax risk?

▲ How do I plan for cash flow crunch times and major contingencies?

One-Time Costs

Fixtures & Equipment $

Remodeling $

Legal Fees $

Licenses & Permits $

Computers & Software $

Transportation (e.g., vans) $

Total One-Time Costs $

Monthly Costs

Salaries $

Rent $

Utilities $

Telephone $

Postage/Delivery $

Advertising/Promotion $

Insurance $

Taxes $

Maintenance $

Inventory $

Total Monthly Costs $

Conversation StartersHelp your advisors help you byasking them . . . $

Pay YourselfBack Any Start-up Costs

If you’ve borrowed from your own assets to start your business or to cover an emergency, rememberto pay yourself back.Maintain accurate recordsand don’t let it escapeyour memory. Once thebusiness is operatingsmoothly and profitably,start paying yourselfback. Your accountantcan work with you todetermine an affordableamount of money to putaway each month for con-tingencies, and to help you keep track of paying yourself back.

START-UP COSTS WORKSHEET

The myriad costs during this phase can bedaunting. It’s important to establish a checklistof business essentials – and try to keep to thatguide. The checklist will allow you to presentan accurate picture to the advisors with whomyou will meet.

Take steps to protect personal assets.Are you “betting the farm” on your new business?It’s good to be passionate and optimistic, but it’s unwise to sink all of your personal assetsinto your new business, especially if you havedependents. The size of your personal invest-ment will depend on what you have to spend(savings, inheritance and spousal support) andhow much debt you can assume. Some entrepre-neurs have used credit cards or home equityloans, or borrowed against insurance policies orretirement funds, but these sources put yourpersonal assets at risk. Talk to your accountantabout a wise amount of personal assets to use,based on your individual situation.

Remember the difference between equity anddebt: equity is money you (or someone else) puts into the business in return for an owner-ship stake, while debt is money you borrow toput into the business (which you pay back with interest).

If you need more start-up funds, consider family and friends financing.Family and friends are often the small businessstart-up’s first choice. Professional lenders, ven-ture capitalists and other investors are usuallynot interested in start-ups; they prefer a busi-ness with a track record, but family and friendscan provide you with invaluable capital. Familyand friends financing can, however, be fraughtwith potential complications, so it’s best toapproach carefully. Many entrepreneurs favor adebt-and-equity approach: family and friend fun-ders become both minority-stake owners andlenders, so their eventual compensation, if any,will be based on both concepts. However, takecare to explain to them the risks associated withinvesting in a small business. It’s worth themoney to have a lawyer draft your agreementwith family and friends investors.

Investigate other funding sources.Look into government- and organization-backed loans and grants. (See chart on right.)

Plan for cash flow crunches.Setting aside precious capital might seem like thelast thing you can afford to do during start-up,but every new business needs a source of funds tocover contingencies. You’ve already calculatedbottom-line personal and business expenses;work with your accountant to figure out whatyou’ll need for a three-month emergency fund.

Home Equity Line of Credit If you can’t come up with all the cash, you canapply for a home equity loan or personal lineof credit. Unlike loans, lines of credit make itpossible to borrow money when you need it;you don’t pay interest until you actually borrowthe funds. Don’t wait until you’re desperate;apply now, when your finances are stable and itis easier to qualify. Shop around, as interest ratesvary. And read the fine print, because low promotional interest rates might be valid for a limited time only. Try not to tap your homeequity line unless you’re facing a real emergency.

Your 401(k) Retirement PlanAnother source of emergency funding might be your 401(k) retirement plan from a previousjob, or if your spouse has one. Read the fineprint; borrowing from one can incur penalties.For more information on 401(k) plans, you can visit www.irs.gov/retirement/participant/index.html. However, it’s important to keep inmind that Congress gave favorable tax treat-ment to 401(k) plans so that employees wouldhave something other than Social Securitywhen they retired. If you tap your retirementfunds for your business, and the business fails,what will you have for retirement?

Avail yourself of potential tax advantages. You might think you have nothing to deduct atthis stage of the game, but you’d be surprised.Talk to your accountant about the many legiti-mate business deductions available to you:office equipment and supplies, phone, Internet,postage and delivery and the like; the cost ofproducing your product or service – marketing,distribution, payroll, retirement savings (seePlanning For Your Life and For Your Future,later in this section) and more.

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U.S. Small BusinessAdministration (www.sba.gov)

• Assists and protects the nation’s small businesses; while not a lender, it facilitates programs that can help emerging companies get funding:

– SBA Basic Loan Guaranty Program: SBA acts as guarantor of loans made by banks and other lending institutions after carefully reviewing the borrower’s business plan and assets.

– Certified Development Companies: SBA-certified nonprofit that aids local economic development. Each CDC works with commercial lenders to create financing packages for small businesses.

– Micro-loans: SBA-designated nonprofit lenders who offer loans up to $35,000 for inventory, equipment and supplies (but not debt repayment or real estate).

– Small Business Investment Companies: Licensed by the government to act as venture capital firms for small businesses.

State Economic DevelopmentAgencies

• Check with your own state’s agency; it may have helpful financing programs.

• Also look into the U.S. Commerce Department’s Economic Development Administration (www.eda.gov).

Minority and Women’s BusinessDevelopment Groups

• Various agencies and organizations that promote businesses owned by women and members of minority groups. The U.S. Department of Commerce operates the Minority Business Development Agency(www.mbda.gov).

Additional FundingSources

Compensate yourself reasonably.Your company earnings might not allow you topay yourself at start-up, and if you have suffi-cient personal reserves or a working spousewho can bear the burden during this period,forgoing a paycheck may be your only choice.But understand that by skipping your own pay-day, you are shielding your business from abasic expense: compensating the owner. If youcan, set up a token salary for yourself; reviewthis figure periodically with your accountantand raise it as your business becomes able. Yourgoal is to eventually compensate yourself inkeeping with standards for your industry, orbetter. If the business cannot pay you for a period of time, have the business write you anI.O.U. saying you’ve skipped a paycheck as aloan to the company, and pay yourself backwhen business improves. The most importantstep is to talk to your accountant or attorneyabout a strategy and any tax implications.

Another alternative is to pay yourself a specialpayment, whenever the business can afford todo so. These are taxed as regular income. Just besure that your business can afford it; don’t baseit solely on sales volume (which might carrywith it increased costs coupled with negativecash flow). And make sure that you record allsuch transactions, as well as any missed ortoken paychecks and personal funds channeledinto the business; if investors are involved inyour business and they raise questions, you’llhave all the documentation you need to pro-vide answers. Again, your accountant or attor-ney is the one to turn to here.

Regardless of the stage of your business, havingthe right types of insurance coverage is vital toprotect the business you are building and safe-guard you and your family along the way.

Protecting your business andpersonal assets.Some coverages are required by law; other typesof insurance may be required by a lender or acustomer with which you wish to do business.Others are essential for protecting you and yourfamily’s health and livelihood.

In every case, you should view insurance as astrategic asset. You need to understand your expo-sure, review all of your business assets and havean in-depth consultation with your advisors todetermine the appropriate coverage. An insur-ance professional can be extremely valuable here,but you might also want to involve your account-ant or your lawyer. They’ll have insights into howmuch and what kinds of risk you face – and theycan often recommend a good insurance agent.

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THE EMERGING COMPANYCompensation & Benefits

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EmployeeCompensationPlans

If your start-up businesshas employees, you’llwant to develop anaffordable, fair and con-sistent compensation planfor them when you drawup your business plan andproject expenses. Speak-ing to your accountantwill provide you withmore control of your pay-roll costs right from thestart, and you’ll avoid themorale-busting issues thata haphazard compensa-tion plan can provoke.

EmployeeHealthInsurance atThis Point?

Speak to an insuranceprofessional about healthinsurance, as it takes onadded importance withemployees. A good planis often an important toolto recruit and retain topcandidates. If you can’tyet afford health insur-ance for your employees,offer to subsidize the costof enrollment in a spouse’splan. Or make a companyplan more affordable bysplitting the cost of pre-miums with them. Keep in mind that some bene-fits you provide may yieldtax advantages for thebusiness – and highermorale and productivityfor your employees.

▲ How do I set up a plan to reasonably compensate myself during start-up?

▲ Can I establish a benefits policy during the start-up period?

▲ How can I find tax-deductible expenses that will help my business grow and enhance my life?

Conversation StartersHelp your advisors help you byasking them . . .

Different healthcare options are discussed onthe next few pages, as well as in The GrowingCompany section on page 19.

Pay-As-You-Go Workers’ Compensation Premiums

New products allow a business owner to pay workers' com-pensation premiums based on actual payroll, which eliminatesthe need for a large down payment and allows a businessowner to better manage cash flow. Options include self-reporting payroll or having premiums billed automaticallythrough a third-party payroll system. Ask your insuranceagent, accountant or payroll provider for details.

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THE EMERGING COMPANYInsurance

Fee-for-Service These plans pay a medical professional of thepatient’s choice a fee for each service providedto him or her. The claim can be filed by eitherthe medical provider or the patient.

More common and there are a range of plansthat all vary slightly. Plan types include healthmaintenance organizations (HMOs), preferredprovider organizations (PPOs) and point-of-service (POS) plans. These more comprehen-sive plans offer financial incentives to useproviders who are part of the plan.

Managed Care

For more detailed information on healthcare plans, see The Growing Company section on page 19.

TWO PRIMARY TYPES OF HEALTH INSURANCE

▲ What type of coverage do I need to have in place at this time?

▲ What coverages are required by law, by lenders and/or customers?

▲ How do I add affordable coverage for myself and my employees?

▲ Do I need specific coverage for doing business with major corporations?

▲ How can I avoid claims and higher premiums that accidents and injuries can create?

Conversation StartersHelp your advisors help you by asking them . . .

Times are challenging with cash and credit in short supply. In today’s uncertain economic environment and with tighterrestrictions on credit, cash flow is vitally important to all businessowners. A pay-as-you-go billing solution for workers’ compensa-tion premiums can help you with:

• Reduction of large premium down-payments• Help in managing cash flow • Fewer audit surprises because workers’ comp premium charges

are based on actual, real-time payroll numbers

Be sure you have coverages mandated by law.Workers’ compensation insurance is a legal requirement in moststates, if you have one or more employees. This coverage pays for the medical, pharmaceutical and other healthcare costs ofemployees’ work-related injuries, as well as a portion of the work-er’s salary while out of work. Workers’ compensation coverage isnot a substitute for health insurance, as employees are only cov-ered for work-related injuries or illnesses. Failure to purchase coverage when it is required can result in severe penalties; thesepunishments can range from significant fines to possible prisonterms to STOP WORK orders.

Workers’ compensation premiums are based on many factors,including your industry, the number of employees you haveand your company’s safety record. It’s important to work withyour insurance agent to be sure your employees’ jobs are ratedproperly, as classifications can affect premiums. Your agent canalso provide guidance on any other legally required coverages;several states mandate disability coverage.

Don’t neglect healthcare coverage (for you).Health insurance can seem like a costly extra expense to ahealthy entrepreneur managing all the costs of a start-up. Butwhen you consider the impact to yourself, your family and business if you were to become ill or injured, it’s clear that sometype of health insurance is essential. Obtain it through a work-ing spouse, extend coverage through COBRA (if availablethrough current coverage) or purchase a high-deductible majormedical policy to cover catastrophic illness. This will keep your premiums low, but you should expect to cover routine doctorvisits and other medical out-of-pocket expenses.

Professional and trade organizations can also offer another cost-effective way to get group health insurance. Ask abouthealth savings accounts combined with a high-deductible healthplan, which has higher deductibles but enables you to pay forout-of-pocket medical expenses with pre-tax dollars, while alsoallowing you to accumulate pre-tax money for future medicalexpenses. When purchasing a health insurance policy, your insur-ance advisor can help you determine your best option. There aretwo primary types: Fee-for-Service and Managed Care. Both covera range of medical, hospital and surgical expenses, and can alsocover prescription drugs. Some may also offer dental coverage.

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THE EMERGING COMPANYInsurance (continued)

Currently two-thirds of small

business ownersdo not provide

their employees’disability coverage.

Source: The Hartford Small Business Panel,

May 2010

Disability Reality Check

A more detailed discussionof the different types ofinsurance can be found inThe Growing Company section on page 21.

Know the value of disability coverage.What would happen to your business if you became disabled? What would happen to your family, yourhome and other personal assets? Forty six percent of employed people between the ages of 21-64reported having some type of disability between 2008 and 2009*.

Unless your spouse or personal resources could fill the gap for what might turn out to be a long time,you would likely need disability insurance to help replace your lost income.

As with health insurance, you can buy disability insurance through professional and trade organizationsand local business groups. Consider looking for long-term renewable, non-cancelable plans that replaceat least 60 percent of your income, pay benefits until you are 65 and include a cost-of-living adjustment.Your insurance professional can help you design a plan that best meets your needs.

Insuring the business: coverages that can mean survival in the event ofa liability claim or loss.As a small business owner, you’ll want to have coverage for your property. A lender may require it.You’ll also want a general liability policy in the event that your company causes injury to someone else.And you may want business interruption coverage, which is designed to help replace lost income dueto a covered loss that forces the business to close for a period of time. These three coverages are oftensold together as a single Business Owner’s Policy, also known as a BOP. Buying these coverages togetheris generally less expensive than buying each coverage separately. Your insurance agent can explain BOPsin detail.

PropertyInsurance

BusinessIncomeCoverage

GeneralLiabilityProtection

Insures physical assets the business owns (buildings and contents, computer system, valuable papers, etc.) for a covered loss. There is standard coverage andmore comprehensive special coverage.

A type of property insurance that helps cover the loss of income resulting from a covered loss (such as a fire) that disrupts the operation of the business. This policymay also cover the expenses of operating your business from a secondary orremote site.

Covers your company in the event that it causes certain harm to others, whetherthat harm is to a person and/or a property. Such causes of harm might include defective products, faulty installations and errors in services provided.

*U.S. Census Bureau, Facts for Features, May 2009

TYPES OF BUSINESS INSURANCE

Almost 3 in 10workers entering

the workforcetoday will become

disabled beforeage 67.

U.S. Social Security Administration, Social Security

Basic Facts, August 5, 2009

Customers may require specific coverages.If your business plan relies on your doing business with major corporations, many of them require bidders to have Errors and Omissions coverage, a type of professional liability insurance.

This coverage helps to protect the business when your action, or failure to take action, in your profes-sional capacity, results in injury or financial damage to a customer. It’s particularly important for com-panies with professionals who give advice, make recommendations, design solutions or represent theneeds of others, such as attorneys, accountants, real estate brokers, consultants, software developers, adcopywriters, Web page designers, or job placement services. It typically covers the cost of legal defenseplus the final judgment, up to a set amount, if the business owner does not win the case. Such policiescan take time to obtain; if you are targeting major corporations as your market, work with your insur-ance agent to get coverage sooner, not later.

You also may want to require your own vendors and/or suppliers to provide a Certificate of Insurance,to prove that they have the proper coverages as they do business with you.

Create a workplace safety program.A safe workplace not only allows employees to feel safe and productive, but also keeps you in business.Taking proactive measures to prevent accidents and injuries can lower insurance claims, maintain oper-ations, improve employee morale and reduce overall costs. (There’s more than insurance at stake; thinkabout the cost of recruiting and training a replacement worker.) The time to address safety is the dayyou open your business. Talk to your insurance advisor about specific steps you can take.

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CommercialAuto Insurance

If you use your personal vehicles for business pur-poses, you’ll want to talkto an insurance profes-sional about commercialauto coverage. Many personal auto policiesexclude coverage if a vehicle is used primarilyfor business. Commercialauto insurance coversautomobiles, trucks andvans used for business.Most policies also coveryour business for the liability incurred whenemployees use their owncars for your business.

ReduceInsurance Premiums

Often, you can reduce thepremium you pay forhealth or auto insuranceby opting for a higherdeductible, or the amountyou’ll have to pay out-of-pocket before you canreceive benefits against a claim. If you have cashreserves or access to low-cost funds, it may be a good idea to ask yourinsurance professionalhow much you can save onyour premium by accept-ing a higher deductible.

Plan for your own and your family’s future – and the company’s.At this point, you probably aren’t considering what your company will look like after you leave, butyou’ve also come to know and appreciate the power of planning for the future.

Whether or not most of your resources are tied up in the business, your plan should include your will,and a buy-sell agreement if you have co-owners and life insurance. Either way, work with your attorneyto determine how you want your assets handled in the event of your death (and also who will serve asguardian for any minor children). The plan should also detail how you’d like your business assets handled.

Part of your planning needs to focus on who takes over after you – if you have determined that thebusiness will continue. Is it your spouse? A child/children? One or more co-owners? Would a keyemployee do the job better and would a buy-out, or partial buy-out, be preferable? Discuss all of thiswith family members, co-owners and/or key employees, if any, to gauge their interest in continuing thebusiness. If there’s nobody available or willing to take over the business, you can specify that the com-pany should be sold and/or how its assets should be disposed of (assets should be listed individually).

All of this should be spelled out with the help of your attorney.

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THE EMERGING COMPANYPlanning For Your Life and For Your Future

BUY-SELL AGREEMENT

If you have co-owners, and they wish to continue the business without you, how will your familybe compensated for your share? You can work with your attorney to set up a buy-sell agreement,stipulating that the surviving co-owner(s) immediately buy your share, possibly with proceeds of Key Person Insurance (see The Growing Company, Insurance on page 20) so that your familywon’t be burdened with conflicts at a later date. This kind of plan should take into account thetype of business entity involved (i.e., whether it’s a sole proprietorship, corporation or partnership).

▲ How do I prepare my will and a succession plan?

▲ How do I plan for my retirement and tax advantages at this stage in my company’s life?

▲ How can I structure a retirement plan for myself and my employees? Can I afford it?


Only 25% of smallbusiness owners

have formal retirement

succession plans.

35% of small business owners

have formal business

continuation plans in the

event of their deaths.

Source: LIMRA Small BusinessOwners Report: 2009

Page 21

Prepare for “What If”

INDIVIDUAL RETIREMENT ACCOUNT (IRA)

There are traditional IRAs and Roth IRAs. Contributions to a traditional IRA generally aredeductible on your personal income return; taxes on any investment growth are deferred, andyou are taxed when and as you make withdrawals. Contributions to Roth IRAs do not reduceyour current income taxes, but any investment growth is exempt from income tax if the distributions are “qualified distributions” (made after five years and age 591⁄2).

Make an effort to set aside funds for your retirement, even if yourcompensation is limited and your assets are tied up in the business. In most cases, the money you put into a qualified retirement plan (a plan that qualifies for special andgenerally favorable income tax treatment under the tax laws) can reduce your taxable income for thecurrent year, and the tax on any investment growth is deferred until the year you withdraw the money.So starting a retirement fund isn’t just a potential boon for your future; it’s a way to reduce yourincome taxes for the current tax year.

In 2011, you may contribute up to $5,000 ($6,000 if your 50th birthday is in 2011 or earlier) to a tradi-tional IRA, Roth IRA or a combination of the two, provided you have at least $5,000 ($6,000) of earnedincome for the tax year. If you are married, you may contribute an additional $5,000 ($6,000) for yourspouse. If you are covered by another retirement plan at any time during the tax year, your deduction for contributions to a traditional IRA depends upon your adjusted gross income (AGI). There are restric-tions on who can make contributions to a Roth IRA based on income. Check with your accountant ortax advisor.

If you want to contribute to a retirement plan for yourself only and the $5,000 ($6,000) limit is suffi-cient, an IRA may be your answer. You can decide how much to contribute to an IRA each year, andyou can make the contribution any time before the due date for your personal income tax return (generally April 15).

To discourage withdrawals from an IRA prior to retirement, any taxable amounts withdrawn prior toage 591⁄2 are subject to a 10 percent penalty tax unless an exception applies. You cannot borrow from anIRA. However, like certain other retirement plans, IRAs may be protected from attachment by creditorsdepending on the laws of your state. Your accountant or financial professional can assist you in settingup an IRA. Please remember, the Internal Revenue Service (IRS) updates contribution limits each year.That's why it's important to talk to your financial and tax advisors before making any decisions aboutyour retirement plans.

11

$

$ Divorce-ProofYour Company

The unfortunate fact isthat many marriages endin divorce. If your marriageor relationship were to gobad some day, what wouldhappen to your business(especially if you and yourspouse are co-owners)?Ask your lawyer whatsteps you can take todayto protect your company.You hope it will nevercome to that, but if itdoes, you’ll be prepared.

Protect YourFamily with Life Insurance

Talk with your insurance professional about per-sonal and business lifeinsurance policies, fromwhich proceeds can beused to provide for yourfamily (especially useful ifmost of your assets havebeen invested in the com-pany). The proceeds froma personal life insurancepolicy should cover yourfamily’s short- and long-term needs; they mightalso cover the worth of thepersonal assets you invest-ed in the business. Theproceeds from a personallife insurance policy canalso prevent family squab-bles if you’ve designatedone person to inherit thebusiness; the others cansplit the insurance pro-ceeds. A business lifeinsurance policy shouldprovide cash to pay anyimmediate debts and helpthe business continue untilit is stabilized under newmanagement or sold. Itcan guarantee that lenderswill be reimbursed.

12

THE EMERGING COMPANYYour World

Choose a few key professionals to work with during your start-up. Your budget for expert advice is lim-ited at this time, so it’s a good idea to stick to the basics and your most pressing needs. If you don’tknow whom to call, ask people you respect for a referral, and then set up an appointment to introduceyourself, ask questions, check fees and get a feel for whether the person is right for you. Here are a fewkey individuals you’ll need to have on call.

Certified Public Accountant (CPA)An accountant can help you with much more than taxes. He or she can help you control your cashflow and grow a profitable business. Your accountant can prepare, analyze and explain your financialdata, and also serve as a valuable resource, providing professional services that businesses need all year –not just on March 15 or April 15.

There are several kinds of accountants, but a certified public accountant has passed a stringent exam andmust pursue continuing education.

Accountants might charge hourly fees or flat rates for specific services. Their fees for services renderedto your business can be tax deductible. Look for the straight-arrow type who adheres strictly to therules, to avoid costly tax audits and other problems.

As with most advisors, it’s best to “help them help you.” Before meeting with an accountant, get yourbooks and plans in the best shape possible. The few hours you spend doing this will save your account-ant time – and you money.

Why You Need One Additional Information

• Prepare taxes www.aicpa.org• Control cash flow for profitability www.goodaccountants.com• Prepare, analyze & explain financial

data

• Access to multiple insurance products www.iiaa.org• Analyze and recommend appropriate

coverage

• Navigate legal labyrinth www.abanet.org• Complete and file business structure www.smallbusinesslawfirms.com

paperwork• Prepare contracts and agreements• Write wills and succession plans

• Set up accounts www.entrepreneur.com/bestbanks• Business loans• Cash management advice

Professional

Certified PublicAccountant (CPA)

InsuranceProfessional

Lawyer

Banker

EMERGING COMPANY KEY PROFESSIONALS

▲ How can I best seek advice from key professionals?


Seeking Advice

On average, small business owners seek

advice from 3 different sources.

63% consult insurance agents

or brokers foradvice on

business insurance.

Other sources includeaccountants, attorneysand financial advisors


May 2010

Insurance ProfessionalThere are several types of insurance professionals – captive agents who work for, and sell the products of, one company; independent agents who work with multiple carriers; and brokers who representclients needing more specialized coverages. While their roles may differ, independent agents and bro-kers typically have access to a wide array of insurance products, and can recommend coverages basedon a particular customer’s needs.

A good insurance agent, one who makes sure you’re covered where you need to be, can mean the verysurvival of your business. It’s vital to find one who understands small business issues – and your partic-ular situation and business.

Lawyer Owning a business can be a legal labyrinth. The right attorney can help you navigate the maze andkeep you on the path to success.

This is especially important if you choose a partnership, limited liability company or corporation asyour business structure, as you’ll need a lawyer to complete and file all the paperwork that will get youlaunched properly. Attorneys can also draw up and review contracts and agreements (for equity invest-ments, leases and other matters), and help you write your will and succession plans.

Lawyers’ fees for handling your business affairs may also be tax-deductible. They typically charge by thehour, plus expenses, but some ask for an up-front retainer from which they deduct hourly fees andexpenses. Ask for a written agreement detailing the fee structure, and ask for itemized bills.

BankerWhether or not you’re using a bank right away for funding, you should cultivate a relationship with akey banker. You still need checking accounts and other services, and it doesn’t hurt to make friendsnow to set the stage for more complex transactions later. Bankers can also offer advice on cash manage-ment and other banking services.

13

$ Tax Preparervs. Accountant

Should you spend themoney on an accountantfor your taxes or a taxpreparer? Probably theleast expensive way tohave your taxes done is touse a tax preparer. He orshe might work for a taxpreparation firm or in asmall business. However,tax preparers are usuallyuncredentialed. There’s nostandard training requiredor exams to pass in orderfor someone to use thistitle. You might get agood one, but you mightalso find one who is unfa-miliar with small businessissues or current changesto the tax laws. Also avoidpreparers (or other typesof advisors you mayencounter) who hit youwith a hard-sell to buyinvestments.

* U.S. Small Business Administration and Monthly Labor Review, May 2005

15

The growing small business is one that has achieved a degree of stability, dependable revenuesand is earning consistent (or fairly consistent) profits. In other words,there’s actually money left overonce the costs of marketing andselling your product or servicehave been covered. At this stage,you’re probably one of the 44 percent of small businesses that have made it to four years in operation.*

At this stage, you, the owner, canfind ways to further boost sales and profits, improve employee (and your) compensation and benefits, and expand staff and facilities as appropriate or desired. Common traits among those businesses that continue to thrive are an enduring focus oninnovation, effective and rigorousmanagement, diversification, customer service and employeesatisfaction/productivity.

How long this growth stage lasts is up to you and the marketplace.

Some entrepreneurs are happytending to the same small busi-ness they’ve developed for therest of their working lives and giveup the business only upon retire-ment. Others become restlessafter just a few years and get anitch to tackle a new and differentchallenge. Still others run theirbusinesses in the hope of cashingin by being acquired by a largecorporation as soon as the busi-ness is on its feet.

Only you know which approach isright for you. In any case, there’s anew set of big-picture goals andchallenges to consider at thisstage, which is all the more reasonfor a solid, experienced team ofadvisors to help you through thisdynamic phase.

THE GROWING COMPANY The Topic of Conversation: Important Steps

to Protect Your Business and Assets as They Grow

Your business is on the road to success. But that doesn’t mean the questions end here. In fact, you may have more now than ever. In this section, you’ll learn more about additional sources for financing, benefit and retirement

plans for yourself and your employees, and various types of insurance your expanding business may need. You’ll also be introduced to new advisors to consider as your business and needs grow.

“Whenever

you see a

successful

business,

someone

once

made a

courageous

decision.”

Peter Drucker (1909 - 2005), Business and

Management Expert

16

THE GROWING COMPANYFinance

▲ How can I secure more resources for business growth? How do I reach professional investors and lenders, as well as more partners and investors?

▲ Do I need a greater focus on limiting risk and mitigating exposure to potential emergencies?


Considerations

• Obvious source of capital• Probably cultivated good relationship already

• Usually mesh with your business• Work with you in several ways

– Outright loan– Guarantor on bank loan– Invest for equity stake

• Deep pockets, inclined to invest• Successful small business entrepreneurs• Often have knowledge of your field• Equity investments and equity-debt deals• Often want to be involved in business

• Specialize in financing start-ups, early-stage businesses and turnarounds

• Higher risk with greater returns• Often require some equity owners

Lending Source

Banks

Strategic Partners

Angel Investors

Venture Capitalists

PROFESSIONAL LENDING SOURCES

Some professional lending sources to consider:BanksAn obvious source of capital and many from which to choose. You’ve probablycultivated a good relationship with a local bank by now.

Strategic Partners These are usually companies whose businesses mesh with yours (a vendor, distributor or larger, well-capitalized company in a related business). These partners can work with you in several ways: they might make an outright loan to your business, act as a guarantor of your bank loan, invest in your company in return for an equity stake, or a combination of these.

“Angel Investors” These are individuals or groups of people with deep pockets and the inclinationto invest in small businesses. These investors are typically successful small businessentrepreneurs or business people, often with an interest in – or knowledge of –your field who can make equity investments, or equity-debt deals to help you pay off other debts or act as guarantors. With such a backer, you can look muchmore attractive to other lenders, strategic partners and business investors. “Angels”often want to be involved in your company’s operations – a good thing if theycan offer a lot to your business in addition to money, and if you “click”; a badthing if they threaten your authority or want to make decisions without yourlevel of insight.

Venture CapitalistsVCs are institutions specializing in the financing of start-up and early-stage busi-nesses, as well as businesses in turnaround situations. Generally, venture capitalinvestments are higher-risk investments, but they offer the potential for above-average returns. For taking the higher investment risk, VCs are usually rewardedwith some combination of equity ownership rights in the business, and are ofteninvolved with companies that have a goal of becoming publicly traded.

Do you need greater sums ofmoney or more sophisticatedinvestors?If your business is making a profit and you’rethinking about your next step, you may needmore capital. Perhaps you’re moving fromsmall, rented quarters to a larger space, oryou’re buying real estate. You may need newequipment to increase production or boostyour IT capability. You could simply need morepeople. Or, all of the above.

Now may be the best time to begin redirectingyour debt away from personal assets (creditcards, home equity lines, personal loans).Beyond reinvesting your profits as fuel forgrowth (which you should always discuss withyour accountant), it may make sense to seekfunding from more sophisticated lenders.There’s a good chance these potential brokersmade themselves scarce when you were a start-up, but they might now offer access to largersums than were available to you previously.

It’s also wise to wean your company from thefamily and friends who helped you start up.They were invaluable to you, but professionallenders tend to shy away from small businesseswith too many family and friends as investors.Start to pay your friends and family as soon asyour income allows, and pay them at least asmuch as they’d earn from commercial invest-ments. They’ll feel fairly compensated for theirgood deed of helping you get started, and you’ll be free to seek other sources of capital.And, you’ll stay on good terms with those closest to you.

17

Prepare for ongoing cash flow crunches.Growing businesses, like those in the emerging stage, can also experience shortages in actual cash on-hand (which, contrary to what many people believe, often have little to do with the company’s actualprofitability). A major customer who suddenly starts paying bills late, a shift in the economy, a healthscare that affects your product – a variety of scenarios can pull cash out of your business.

Growing businesses usually need reserve funds to help manage these situations. However, the mostimportant and immediate thing to do is discuss with your accountant why these cash flow crunchesare taking place, and what you can do to prevent or lessen them in the future.

Since you probably have a track record now, you have more leverage with lenders and can set upaccounts to tap during these crunch times. Some options include:

Company Credit LineLike a home equity line, it makes credit available on demand. But it relies on your business collateral,not your home or other personal assets. Like a home equity line, it’s best to apply for one when youdon’t need it. Shop around, however, as some lenders require that you borrow something from yourcompany credit line whether you need funds or not; then you’ll pay interest on what you borrow. Talkto your accountant or banker about what’s best for your business situation.

Corporate Cash Management AccountAt the same time, a corporate cash management account with a bank or investment brokerage can be avery useful tool. This account allows you to link your company checking account to a liquid interest-bearing savings account (typically a money market fund). Any company cash that isn’t being used cango into it and earn interest, but it will be completely liquid when you need it.

$ Beware ofUnknownInvestors

Beware of unknowninvestors and always checktheir references carefully(past recipients, attorneysand accountants), as scamartists are lurking, lookingfor their next victim. Lookinto the Small BusinessAdministration’s AngelCapital Electronic Network(ACE-Net), which is a list of accredited smallbusiness investors with net worth greater than $1 million or net incomegreater than $200,000.

18

THE GROWING COMPANYCompensation & Benefits

A good time to review your self-compensation policy. Once you have progressed to a consistently positive cash flow situation, you may want to raise your ownsalary. Before you do, however, consider your tax situation and gear your pay toward the health of yourbusiness. Your accountant can advise you on how best to do this and balance your interests with thecompany’s financial considerations.

Deferred compensationIf your company is doing well enough that you’ve been able to increase your compensation and bene-fits package (including retirement funding), you might want to consider an additional source of savingfor the future: a deferred compensation plan. You pick the amount and the timing (you can defer compensation every year or just for one year). Deferred compensation plans usually complement quali-fied retirement plans, such as pension and profit-sharing plans (must be non-discretionary), as well asnon-qualified plans limited to highly compensated and management-level employees. Stock optionsare another possible component of an overall compensation strategy.

The primary benefit of most deferred compensation is tax deferral.

Consider adding new benefits.The health of your business may allow for the expansion of your compensation package and enable youto begin to offer additional benefits, from childcare subsidies, college savings plans, life insurance andlong-term care insurance to smaller, but popular, items like health club memberships and wellness pro-grams. These benefits have become important to many companies in recruiting and retaining keyemployees. Take a look around at what competitors and successful companies in other areas are doing.

▲ How often should I review how I compensate myself?

▲ Are there advantages to deferring compensation?

▲ When should I consider introducing company-wide benefits?


1 in 3 (34%) smallbusiness owners

provides disabilityinsurance to

their employees. Source: The Hartford

Small Business Survey, December 2009

Health Benefits

$What About an ESOP?Is your business right for an Employee Stock Option Plan? Talk to your accountant or lawyer aboutESOPs, which are not only an employee retirement benefit, but also a performance incentive.ESOPs can be key in the company’s future transition, as well (see The Transitioning Company onpage 30). The business funds employee retirement accounts that invest in your company’s stock;employees own a stake in the company and are motivated to see it prosper. An employee may sellstock starting at age 55. The year after the employee retires, the ESOP must issue distributions tothe employee. ESOPs can be expensive to set up and are typically for larger companies.

Another Look at Disability Insurance There are pros and cons to buying disability insurance for the entire company versus just foryourself. A company policy will be easier to get and the premiums will be deductible, but it willrequire a bigger cash outlay. Benefits are considered income and are subject to personal tax.There are two options for disability insurance: pre-tax contributions with taxable benefits, ortaxed contributions, for which benefits are not taxed.

An individual plan, if you can get one, will be proportionately more expensive, but any benefitsyou receive are not taxable.

90% of firms with 25 to 49

employees offerhealth insurance

coverage.

78% of firms with 10 to 24 employees

offer coverage.

49% of firms with 3 to 9 employees offer coverage.

Source: 2008 survey by The KaiserFamily Foundation and the Health

Research and Educational Trust

19

Plan

Health Maintenance Organization (HMO)• Contractually agrees with healthcare

providers to form a “provider network.” • Providers supply discounted services in

exchange for referrals.• HMO members are required to stay within

the network.• Members select a Primary Care Physician

(PCP), who provides care and makes referrals for specialists.

Participating Provider Option (PPO)• Similar to an HMO, but employees can

choose the physician they want instead of being restricted to HMO providers.

• An employee can choose between an in-network or non-network provider.

• “Richer” benefits such as financial incentives to use network providers.

Point-of-Service (POS)• Often considered an HMO/PPO hybrid,

with members choosing which option they will use each visit.

• POS has contracted provider networks and encourage, but don’t require, members to choose a PCP who acts as a “gatekeeper” when making referrals.

• Members who choose not to use PCPs for referrals (but still seek care from an in-network provider) receive benefits, but pay higher copays and/or deductibles.

• Members may visit an out-of-network provider, but member co-pays, and coinsurance and deductibles, are substantially higher.

Costs

• Members pay a co-paymentfor in-network office and hospital visits, regardless of cost.

• Members pay some portion of the cost (co-insurance) for in-network office and hospital visits, such as 10% of the cost.

• Members pay higher costs for care from providers outside the network.

• Members pay some portionof the cost (co-insurance) for in-network office and hospital visits, such as 10% of the cost.

• Members pay higher costs for care from providers outside the network.

Benefits

• Relatively simple, with no claim forms.

• Agreed-upon charges can be relatively low to members.

• Members can see any healthcare professional in the network, including specialists.

• Least restrictive option of the three main plans.

• Members can see any licensed healthcare professionals for anything covered by the insurance.

• You choose deductible and other options when you enroll, and those apply to you and any dependents you enroll in the plan.

Considerations

• The least flexibility: limited to enrolled doctors.

• Need referral from primaryphysician for specialized service and hospitalization.

• If the member receives carefrom non-network provider,HMO typically won’t pay unless pre-authorized or deemed an emergency.

• Members seeing a physician outside the established PPO networkwill pay a higher portion of the costs.

• Care received by out-of-plan providers is reim-bursed, but you have to pay a significant co-payment or deductible.

Other healthcare options include:Health Savings AccountsHSAs were created by the Medicare bill signed in 2003, and are designed to help individualssave for future qualified medical and retiree health expenses on a tax-free basis. The account,usually tied to high-deductible health plans, is designed to pay for routine medical expensesand/or provide savings for the future. Money put into the account for medical expenses canbe used either during the year or accumulated. Allowable medical expenses are defined bythe IRS, and are broader than most insurance carriers’. Individuals can deduct dollars con-tributed to the HSA account from their gross income, resulting in tax-free medical dollars.The account is similar to an IRA account; however it is for qualified medical expenses only.

Flexible Spending Accounts FSAs let employees set aside pre-tax dollars to pay for qualified medical expenses, subjectto IRS guidelines, saving money in taxes for both the individual and the company, whichdeducts a business expense. However, unlike an HSA, funds earmarked for these accountsmust be used in the year they are contributed; they can’t be used as a retirement fund.These are truly a “use them or lose them” item.

COMPARING THE THREE MAJOR TYPES OF HEALTHCARE PLANS

Consider a company-sponsored healthcare plan.The introduction or expansion of a company health benefits package willenhance life for both your employees andyou, and will offer tax deductions for yourcompany. As the company grows and yourneed for top-quality employees increases, ahealth plan is an important recruitmentand retention tool, particularly in fiercelycompetitive industries like technology,healthcare and finance.

As important as healthcareplans are, so is careful shopping.The three major types of healthcare plansare compared in the chart above.

20

Prioritize and expand your coverages. As your company grows, you should have more resources to devote to insurance – and you may findthat you need additional coverages to protect your business against the increased risk that often comeswith growth. Whether your growth has taken the form of investment in expensive equipment or the hiring of key staff, you need to understand the value of your expansion and plan to protect it. And besure you know what coverages your clients, investors or creditors require. Some might insist on higherlimits than you might choose on your own.

As you add employees, it becomes increasingly important to have Employment Practices LiabilityInsurance, which can help protect your business from certain employment-related claims; and KeyPerson Insurance, which can help protect against a significant loss resulting from the death or disabilityof a key employee. If you have investors, customers, suppliers or others with a significant financial stakein the success of your company, you may want to consider Directors and Officers Liability Insurance,which can help protect the company and its leadership against allegations of breach of fiduciary duty in the management of the company.

Devise a comprehensive risk management program.Managing risk is about more than just having the right coverages, although that’s where it starts. Youneed to be sure you know where your risks lie and what steps you can take – beyond insurance – tolimit them. You can help your insurance agent think about risk in a holistic fashion and build a plan to address it. A typical risk management program has many aspects, such as employment screening,proactive loss control, comprehensive safety and ergonomic training, a formal return-to-work programfor injured employees (with light-duty jobs pre-determined), special equipment (such as a state-of-the-art fire suppression system), business contingency planning and, increasingly, technology and informa-tion protection. To the extent that other professional expertise is required to implement your program,your insurance advisor can help you arrange for these services. And don’t forget to ask him or her aboutcredits that might be available for a comprehensive risk management program in a business like yours.

Ensure that your business can carry on in the event of disaster.Be it from the wrath of Mother Nature or man-made threats, you need to protect your company’s physical and intellectual assets. Work with an IT professional to ensure that you have secure storage of important records and sufficient backup of sensitive company data. Proper planning can get yourcompany back on its feet in a short time.

▲ Do I need to expand coverages as my business grows? How can I best prioritize coverages?

▲ How about a comprehensive risk management program?

▲ Do I need to consider Key Person Insurance, Employment Practices Liability Insurance and Directors & Officers Liability Insurance?


$ Insurance As CreditProtection

Owning the proper typeof insurance can accom-plish other goals, such as protecting your credit rating when earnings areimpaired and fundingdeferred compensationarrangements. With certaincoverages, if an emergencystrikes, you have accessto your policy’s cash values through loans andwithdrawals; the cashvalue of the policy is acompany asset. Speak toan insurance professionalabout the details.

YOUR ANNUAL INSURANCE CHECKUP

It’s wise to sit down with an insurance professional for a yearly review of your picture. Make sureyou review all of your coverages – even if some were purchased through another professional orcarrier. Also prepare an overview of changes that occurred in your business over the previous year– fluctuations in revenue, increases or reductions in inventory, new or upgraded real estate orfacilities, physical plant and equipment or office equipment, fleet changes and additions to staff.Add an up-to-date inventory of your assets—real estate, physical plant, inventory, office equip-ment and furnishings and staff. Then your insurance agent will have a full picture of your businessthat will help you get the protection you need.

THE GROWING COMPANYInsurance

Only one-fifth(20.6%) of

companies withfewer than 50

employees have Key Employee Life Insurance.


May 2010

Protecting KeyEmployees

21

Policy

Business Owner’s Policy (BOP)Usually more cost-efficient to purchase bundled coverages ratherthan individually.

Property Insurance (repair or replacement)

Business Income Coverage

Comprehensive General Liability (CGL)

Bodily Injury Liability

Property Damage Liability

Product and Completed Operations Exposures

Advertisers Personal Injury

Fire Legal Liability

Medical Payments

Workers’ Compensation

Typically Covered (subject to policy terms)

Property Damage, Business Income Coverage andComprehensive General Liability.(See next three entries)

Your physical assets: building, equipment, furnish-ings, fixtures, inventory, computers, valuable papers,records, and more. Can include personal property of others in your care, custody or control.

Lost earnings if business is forced to shut down dueto fire, windstorm, explosion or other insured loss. May include coverage of expenses incurred to keepoperating, such as renting temporary office space.

Can also provide income if business is forced to sus-pend operations after a covered loss.

Your business assets, if company is sued for some-thing it did or even didn’t do that resulted in bodilyinjury or property damage to someone else.(See next six entries)

Injuries or deaths that happen on company propertyor arise from your operations. Often limited to bodily injury liability as a result of negligence. UnderComprehensive General Liability Insurance, this coverage, coupled with Property Damage Liability(below), is often referred to as Premises andOperations Exposures.

Liability for damage to others’ property not in thecare, custody and control of the insured.

Bodily injury or property damage to others causedby the company’s finished work or manufacturedgoods.

Lawsuits brought against the company alleging libelor slander as a result of company advertising.

Companies that rent their business property. It protects the landlord against fire damage to theproperty by the lessee company.

Visitors’ minor injuries sustained while on companyproperty.

Medical bills, rehabilitation and drugs to treatemployees’ work-related injuries or illnesses, as wellas lost work time.

Who Generally Purchases It

All companies.

All companies.

All companies.

All companies.

All companies.

All companies.

All companies.

All companies.

All companies.

All companies.

Most states require it for companies with one or moreemployees and impose penal-ties on employers who don’tpurchase this coverage.

Demystifying Business Insurance continues on pages 22-23.

DEMYSTIFYING BUSINESS INSURANCE

22

Policy

Commercial Auto

Professional Liability(Errors & Omissions Coverage – E&O)

Directors and Officers

Employment Practices Liability Insurance(EPLI)

Fiduciary Liability

Fiduciary Bond

Crime Coverage

Cyber Coverage

Key Person Insurance

Business ContinuationCoverage/Buy-Sell Planning


Cars, trucks and vans owned by the company for business purposes. Most policies also cover the liabilityof employees using their own vehicles for your busi-ness; however, the employees’ personal auto policiesmay provide primary coverage for damage to theirautomobiles.

Claims alleging that something your company did or failed to do on behalf of a customer was in error andcost him/her money or caused harm in some way.

Directors and officers of your company if they or thecompany is sued as a result of the performance oftheir company duties.

Certain claims by government regulators, competitors,investors and shareholders alleging mismanagement,unfair competition, violation of state or federal law andother wrongful acts.

Claims of illegal or discriminatory hiring and firing; sexual harassment; discrimination; mental anguish andother employment-related claims.

Claims of a breach of the responsibilities or dutiesimposed on a benefits administrator in your employ; or negligence, error or omission of the administrator.

Same as Fiduciary Liability, but for companies thatoutsource their benefits administration.

Employee and non-employee theft, forgery, computerfraud, and theft of goods on premises or in transit.(Crime coverage may be available for loss on premises,off premises or both.)

Losses from computer hackers, virus attacks, denial-of-service attacks, copyright infringement andcustomer claims arising from your website.

Loss resulting from the death or disability of a keyemployee (e.g., owners, partners).

Transition of ownership in the event of death or disabilityof a business owner. Helps avoid conflicts between surviving family members and remaining owners.


Companies that own vehicles for business use or often use employees’vehicles for business. If employees’vehicles are used only occasionally, the Commercial General Liability may be sufficient.

Anyone who gives advice, makes recommendations, designs solutionsor represents the needs of others.

Any publicly traded company with a corporate board or advisory com-mittee. May also be necessary for non-profit organizations and privatecompanies.

All companies with at least twoemployees. While employment prac-tices lawsuits are usually broughtagainst larger companies, all businesseswith employees are vulnerable.

All companies that employ an in-housebookkeeper or accountants and provide401(k), pension or other financial plans.

All companies that outsource payroll/benefits administration.

All companies, but especially companies that deal with lots of cash.

Any company that keeps sensitiveinformation on a network or doesbusiness online.

Any business, but especially smallbusinesses in which the key person isthe customer-supplier contact or is so crucial to the business that his/herloss would cause a severe drop in efficiency and loss of capital.

Small business owners are particularlyin need of business continuationplanning.


THE GROWING COMPANYInsurance (continued)

23

Policy

Disability Insurance

Group Life Insurance

Group Retiree Health Benefits

Umbrella Liability

Business TravelAccident Insurance

Accidental Death & Dismemberment


Covers a person’s income when he/she is unable to work because of an accident or illness. Most coverages provide about 60 percent of aperson’s income.

Sold as either Group Disability through an employer, or IndividualDisability, purchased directly from a provider (or as part of a group,such a professional association or civic group [e.g., trade group,Chamber of Commerce, etc.])

There are two primary types of Disability Insurance:

• Short-term Disability (STD): benefits equal to a portion of the employee’s wages when he/she can’t work because of disabling illness or accidental injuries. Usually have a waiting period of 0 to 14 days and most run out within 2 years.

• Long-term Disability (LTD): benefits equal to a portion of the employee’s wages when he/she can’t work because of long-term disabling illness or accidental injuries that happen on or off the job. Waiting period of several weeks to several months, and a maximum benefit duration from a few years to retirement at age sixty-five.

Typically offered as basic, supplemental or voluntary coverage and canbe paid for by the employer, the employee or both. The coverage is usu-ally offered as a flat dollar amount or a percentage of the employee’ssalary, although employers can choose the plan design and other details.

Most employer group plans are term insurance, i.e., available to theemployee as long as they remain eligible through their employer. Thecoverage is often available for employees, spouses, dependent childrenand retirees. During enrollment periods, some plans offer levels of cover-age that are “guaranteed acceptance” without having to show proof ofgood health or a medical exam.

Costs are determined by the industry, the number of employees, the average employee age and gender of employees.

Designed to integrate with Medicare plans and cover many of thedeductibles, co-payments and out-of-pocket medical expenses not covered by Medicare. Plan designs include a variety of employer- and retiree-paid solutions, based on the needs of the employer. Plansmay also include both medical and pharmacy benefits.

Sponsored by employer groups with a minimum of two retirees, eligible persons include retirees, spouses, widow(er)s and domestic partners, aged 65 or older, and entitled to Medicare.

Catastrophic losses that exceed the limits of a general liability policy.

Covers employees and their families against accidental injuries duringbusiness trips. Can protect all employees or particular classes ofemployees, and specify whether coverage pertains to entire trips or onlythe business portion. Many policies contain travel assistance services,including trip planning and 24-hour emergency medical assistance.

Provides benefits to employee’s family if employee suffers injury ordeath as a result of a covered accident. AD&D coverage also pays a certain amount for loss of a limb or certain vital functions as a result of a covered accident.

Similar to group life insurance, AD&D is offered as basic or voluntarycoverage and can be paid for by the employer, the employee orshared. Unlike life insurance, AD&D coverage does not pay benefits if employee’s death is due to illness.


Some states require companiesto carry some amount of STD.

In some states (includingCalifornia, Hawaii, New Jersey,New York, Puerto Rico andRhode Island), state lawrequires employers to providedisability benefits for up to 52 weeks.

No laws require companies tocarry LTD.

More common among largercompanies, but smaller com-panies are starting to see thiscoverage as a recruitment andretention tool.

All companies with a minimum of two retiredemployees.

All companies.

All companies whose employees regularly travel for the business.

All companies.


A retirement plan is probably on your radar screenat this point. Companies establish different plansfor different reasons – why are you establishingyours? To get maximum tax benefit for yourselfand your key employees? To attract and retainemployees with the skills you need? Answers tothese questions will help you decide what type ofplan and features you need.

Consider a qualified companyretirement plan that will helpenhance your future and that of your employees. There are a variety of plans available today, includ-ing straightforward, economical plans designed forsmall business owners. By offering a retirementplan, you stand to gain several benefits. Small busi-nesses may be eligible for a three-year tax credit ofup to $500 for setting up a new retirement plan.Your employees, too, might be eligible for taxincentives for their contributions to the plan. Aretirement plan can also be a valuable recruitmentand retention tool. Today, there are more plan andinvestment options than ever.

Qualified vs. non-qualified plans . . . “qualified”plans are eligible for special tax treatment; how-ever, you must satisfy certain non-discriminationand other requirements intended to provide benefits for rank-and-file employees. Non-qualifiedplans allow you to pick and choose the benefitsfor selected managerial employees, but they maynot have all the benefits of tax-qualified plans.Speak with your financial advisor or accountant.

Individual Defined Benefit PlansEmployer-contributed plan designed to pay a defined

benefit at retirement with emphasis for the businessowner. Participant’s accrued benefit is a fixed benefitdetermined by the plan formula instead of invest-ment results of an individual account.

Defined Contribution Plans Most current retirement plans are defined contribution plans, in which employer and/oremployee contributes to the employee’s retirementaccount and the participant bears the investmentrisk. Within this category of plans, there are manyvariations, each one appropriate for different kindsof businesses in different circumstances. You haveseveral choices. The chart below is representativeof many, but not all, of the choices.

Whatever plan you choose, be sure to have a knowl-edgeable professional set it up to ensure it conformsto IRS rules.

Take advantage of other ways to save for the future. If you can put away other monies for retirement,all the better. Business owners need to diversifytheir investment risk away from their business, andthey need to assess this in determining how to balance their portfolio. Work with your account-ant and financial planner to look into investmentsthat balance risk and growth. The first step is totally up your assets and determine their relativesecurity, what they’re worth now and how muchincome they can produce annually, now and overtime. Then, fill in the gaps.

Consider saving for your children’s education.It’s often recommended that you fund healthinsurance and retirement before college, as there are other resources – loans, scholarships, jobs,help from relatives – that may be available to your children when they reach college age.

Section 529 College Savings Plan This is a tax-advantaged education savings plan. It differs from state to state; you can start onethrough your own state’s plan or through the several states that offer their product interstate.

24

THE GROWING COMPANYPlanning For Your Life and For Your Future

▲ Can I enhance my company’s retirement benefits?

▲ How should I be thinking about my own investmentsin this phase?


$Don’t NeglectYour Own Retirement

Benefits for your entire workforce might still be financially out of reach foryour growing company,but you should discussyour own retirement withyour accountant or finan-cial planner. Don’t forgetthat as a self-employedentrepreneur, you may beallowed to fund an IRA foryourself and your spouse.You can also grow yourassets in a life insurancepolicy and be protectedat the same time.

Retirement Planning

1 in 3 small businesses offers anemployer-provided

401(k) plan.

Source: The Hartford Small Business Survey,

December 2009

EMPLOYER-SPONSORED DEFINED CONTRIBUTION PLANS

Considerations

• Employee contributions are not allowed.

• Employer contributions are immediately vested.

• Contribution formula, or percentage of salary, must be allocated equally to all eligible employees.

Plan

SEP IRA (Simplified Employee Pension) – An employer-sponsoredand employer-contributed IRA plan, meaning that contributions aremade by the employer, rather than the employee, and invested inthe employee-owned IRA. A SEP-IRA allows the business to con-tribute and deduct up to 25% of compensation (but no more than$49,000 per employee).

Benefits

• Great option for a smaller business.

• Simple to implement; doesn’t require a third-party administrator or filing of tax forms.

• Does not require ongoing contributions.

25

Plan

SIMPLE IRA (Savings Incentive Match Plan for Employees) –An IRA-based plan that gives small employers a simplified methodto allow employees to contribute, and to require employer con-tributions toward their employees’ retirement and their ownretirement. Under a SIMPLE-IRA, employees may choose to makesalary reduction contributions and the employer makes matchingor non-elective contributions. Eligible employees may contributeup to $11,500 in 2010 ($14,500 if age 50 or older in 2010), withno percentage limit. Generally, the employer must make dollar-for-dollar matching contributions on the first 3% the employeecontributed or a 2% non-elective contribution of each eligibleemployee’s compensation.

Individual 401(k) – A 401(k) plan designed specifically forowner-only, and owner and spouse-employee businesses.Individual 401(k) plans offer the same tax advantages of tradi-tional 401(k)s, including option of pre-tax or after-tax Rothsalary deferral contributions by eligible employees with optionof immediately vested profit-sharing contributions the businessmay deduct. Unlike traditional 401(k) plans, top-heavy testing is not required and annual tax filing is only required once planassets exceed $250,000.

Safe Harbor 401(k) – A 401(k) plan designed to eliminate theneed for annual Actual Deferral Percentage (ADP) and ActualContribution Percentage (ACP) tests that may limit highly com-pensated employees’ deferrals. Requires immediately vestedemployer-matching contributions, as well as advance notice and communications to employees.

401(k) – Popular option for companies with stable staff.Employees can elect to defer a percentage of salary up to$16,500 in 2010 ($22,000 if age 50 or older in 2010). Employermay make matching contributions and/or offer a profit-sharingcontribution. Plan may offer provision for both pre-tax deferralsand after-tax Roth deferrals, as well as loans.

Cross-tested Profit Sharing Plan – Permitted plan designs whichweight allocation of employer contributions by age and/or groupfunding formula. Age-weighted and New Comparability ProfitSharing Plan designs are popular solutions for small businesses in which the owner is older and more highly compensated thantheir employees. For 2010, contribution maximum is $49,000 per employee.

Individual Defined Benefit Plan – Employer-contributed plandesigned to pay a defined benefit at retirement with emphasisfor the business owner. Participant’s accrued benefit is a fixedbenefit determined by the plan formula instead of investmentresults of an individual account. Most appropriate for high-income business owners, with limited employees who areyounger and less tenured. Appropriate for owners seeking highest tax deduction.

Cash Balance Defined Benefit Plan – A type of defined bene-fit plan that provides participants with an account balancethat grows annually based on the employer contribution and a guaranteed interest credit that is not dependent on theplan’s investment performance. Employer contribution isdetermined by the plan’s specified formula as a percentage of pay or a flat dollar amount and generally greatly exceedsdeductible employer contributions allowed in a 401(k).

Benefits

• Simple to operate and administrate.Minimal paperwork and expense, anddoes not require filing of tax forms.

• No salary deferral limitations for key employees and owner’s deferral options.

• Calendar-year plan in which employer’s match or contribution to employees may vary from year to year.

• Simple to establish and generally offers greater tax advantages to the business and owner than a SEP or SIMPLE IRA plan.

• Administrative costs are generally reduced due to limited testing and simplified documents.

• Loans and account consolidation may be offered.

• Fewer compliance tests simplify administration and often reduce costs.

• Highly compensated employees may be allowed to defer up to the maximum allowed by law.

• Many companies match employee deferrals and can make discre-tionary contributions, up to $49,000 per employee.

• Attractive benefit for recruitment and retention of employees; familiar to employees.

• Employer contributions are discretionary so that in leaner years employer is not obligated to contribute.

• Greater proportion of employer contribution provided to older owner.

• Provides pre-determined retirementbenefit, which may be alternatively available as portable rollover lump sum.

• Allows older business owners opportunity to build retirement account in fewer years than defined contribu-tion plans since contribution amount may be substantially greater.

• Provides participants with an account balance based on pre-determined retirement benefit.

• Allows older business owners and key employees opportunity to build retirement assets in fewer years.

Considerations

• May only be established by employers with no more than 100 employees who earned $5,000 or more compensation during the preceding calendar year.

• Employer contributions are immediately vested.

• An employer match of less than 3% may only be offered for 2 of 5 years.

• Generally not suitable for businesses that may experi-ence employee growth in the future.

• For partnerships, each owner must have at least 10% own-ership to be eligible to offer.

• Unlike a SEP or SIMPLE IRA plan, a formal process is required at termination.

• Employer generally is required to contribute approximately 4% of eligible employees’ compensation.

• 30-90-day advance annual notice must be given to eligible employees.

• Administrative fees may make them less attractive to smaller firms.

• Subject to annual IRS/DOL reporting and non-discrimi-nation & top-heavy testing.

• Complex plan designs require professional adminis-tration to establish and maintain.

• Plan designs are sensitive to demographic changes.

• Can require the employer to contribute large sums over a relatively brief period of time. Contributions are required each year.

• Can be costly to administer. Requires an actuary and annual IRS and DOL reporting.

• Annual contributions are mandatory and while amounts may vary, most appropriate for companies with a strong profit history.

• All contributions and investment strategies are the responsibility of the employer.

EMPLOYER-SPONSORED DEFINED CONTRIBUTION PLANS (CONTINUED)

Review existing relationships and develop new ones as needed.At this stage, you’ll build your existing network. For financing and expert assistance with growth strategies, seek strategic partners, investors and/or venture capitalists.

While you may have some or all of the following advisors as part of your team, you may require moreor different skills from them now:

Certified Public AccountantAs you find yourself with more deductible business expenses and as you have more cash to fund health,retirement and other benefits for yourself and your employees, you’ll need expert advice to set all theseup and achieve maximum tax benefits.

LawyerYou’ll need your lawyer if you change your business structure, enter into more complex equity relation-ships, strategic partnerships, employment issues, real estate transactions and other contracts. Considerswitching to or adding a specialist if your current lawyer lacks the knowledge to guide you through anew venture.

Insurance ProfessionalsAs your cash flow improves and your assets grow, there will be more to your business that you’ll wantto protect – and you’ll have more resources to do so. An insurance professional who is knowledgeableabout small businesses, and not tied to selling a single carrier’s policies, may be in the best position tohelp guide you to the coverages that are most important now.

26

THE GROWING COMPANYYour World

$Protect Your GrowingAssets

At this stage your businessis growing and, most likely,so are your personalassets. Be sure to shopfor a wealth managerthat offers personal finan-cial planning and a broadvariety of investmentproducts. The most valu-able advisors are usuallythose that represent arange of companies andproducts, and are not tiedinto one source.

▲ How do I grow my professional network as my business grows?

▲ Does a small business need an advisory board?

▲ I’ve heard a lot about finding a mentor. Why is that important and how do I find one?

▲ Is it time to shop for a more sophisticated private wealth manager?


$ Choosing aFinancialProfessional

When choosing a financial professional its important to:

1. Seek help from some-one with verifiable credentials.

2. Meet with a potential advisor to make sure he or she understands your needs and objectives.

3. Find out up front how payment works, whetherit is an hourly or fixed fee, commission-based, a combination, or another arrangement.

For more informationabout selecting a financialprofessional, visitwww.sec.gov/investor/pubs/invadvisers.htm orwww.finra.org/Investors/index.htm

27

Investment advice: Where toturn for help.Depending on your situation, you may find ithelpful to work with a financial professionalwho can provide guidance about investmentsand other financial planning needs. At varioustimes in your life, you might consult an invest-ment advisor, a financial planner – or both. Aninvestment advisor can help you make andmanage your investments. A financial plannercan help you with insurance, retirement plan-ning, and estate planning as well as investments.However, beware: Not all financial plannerstake such a comprehensive view, and anyonecan use the title.

It’s important to seek help from someone withverifiable credentials.

Registered representatives, often known as stockbrokers or brokers, must pass exams to belicensed to sell securities and must be registeredwith FINRA. It may also be a good idea to lookfor an advisor that holds either of the followingdesignations:

A Certified Financial PlannerTM (CFP®) is aprofessional that can offer advice on retirement,taxes, investing, employee benefits and realestate. A CFP must have a bachelor’s degreeand three years’ experience, and must pass a 10-hour exam overseen by the Certified FinancialPlanner Board of Standards to use the trade-marked CFP initials or logo. You can find aCFP in your area, or verify credentials atwww.cfp.net.

A Chartered Financial Consultant (ChFC®) isa financial advisor with advanced knowledge inwealth accumulation and retirement planning.A ChFC must have at least three years’ experi-ence in the financial services industry and passan examination on the fundamentals of finan-cial planning, including income tax, insurance,investment and estate planning.

You may want to create an independent advisory board.While not required, many small business own-ers have also begun to assemble a board of advisors, a group of people who come togetherto share their knowledge and experience. Yourboard can be made up of the network of specialists whose services you already use orothers, including some in your own field ofbusiness and a customer or two.

The advisory board has no legal responsibilitiesor rights, but can be as much of a valuableresource or sounding board as a (legallyrequired) board of directors is to a public com-pany. The key is to sharply define what yourboard will do – what advice you need, what youdon’t need, when you will meet, etc. Avoid hav-ing employees on your advisory board; theymight defer to your opinion, even if youencourage them to speak freely.

Seek out a mentor or profes-sional coach.At this stage, you’ll often find yourself in needof someone with whom you can talk aboutbusiness and issues in a confidential, peer-to-peer way – a mentor (when you’re at the top ofthe company, it’s hard to have such conversa-tions with associates). A mentor is typically amore experienced owner of a small businesswho has faced the same challenges that you arefacing now. He or she might be someone you’vemet at a professional gathering, or in the courseof your work. Or it might be someone you’vefound through a mentoring program sponsoredby the local entrepreneurs association, a tradegroup or even a retired businessperson’s organi-zation (such as SCORE– Service Corps OfRetired Executives).

However, make sure that, as successful as theseindividuals have been in building companies,they are also good in advising others in thegrowth of a business. You can look for such a professional coach at www.coachfederation.org.

29

The transitioning business is one that may bein its last few years under the current owner or owners.

Regardless of whether the transition is trig-gered by the owner’s impending retirement, a change in business conditions or the owner’sdecision to move on to another venture, thesteps taken during this time will be critical to the company’s health and the owner’sfuture finances.

A major factor in how to treat this phasedepends on the actual transition – whetherthe company is to be sold to another businessentity, another individual, employees, orpassed to the owner’s family.

Whatever the reason for the transition or thenature of the ownership change, maximizingyour advantages and minimizing potential pitfalls will require a high level of businesssavvy, and greatly benefit from your current –or expanded – group of advisors.

This is also the time to ask whether this coregroup of advisors – those who have providedvaluable advice to get you to this point – isthe same group suited to help you throughthis time of transition. Greater risk and com-plexity may require professionals with morespecific skills and experience.

As with the previous stages of your company’slife, there are many financial, insurance and lifeissues to think about.

THE TRANSITIONING COMPANY The Topic of Conversation: Important Considerations as You Prepare to Sell

or Pass Your Company to Heirs, and Plan for What’s Next

You’re ready to start a new chapter in your life. You probably have questions about the near future and beyond. This section outlines various options for your business transition, and how the right advisors can help you make the right choices for your

business, employees, co-owners and for your own personal financial health.

First, find out if your businessand you are ready to sell.As much planning as it took to start your business, that much – if not more -- planningshould be put in during a time of transition.There are many things to review with youraccountant before the final disposition of yourbusiness, whatever it might be. An accurate

valuation of privately owned companies largelydepends on the reliability of the company’sfinancial information. And, as simplistic as itmay sound, you must absolutely be ready toturn the business over.

Is the business ready?Valuation of BusinessIf you are selling, a valuation will show themarket worth of your business – a general ideaof how much you can expect to get from abuyer. A valuation is typically determined by anaccountant, a lawyer specializing in businesstransitions, an investment banker or a businessappraiser. Whoever you use, make sure theybelong to, and adhere to the policies of, one ofthe three major U.S. valuation societies: theAmerican Society of Appraisers (ASA), theInstitute of Business Appraisers (IBA) and theNational Association of Certified ValuationAnalysts (NACVA).

▲ How do I determine if my business is ready for a transition? How do I make it look most attractivefor sale?

▲ Should I expect to receive a lump sum or earn out?

▲ How can I retain key employees during the transition?

Conversation StartersHelp your advisors help you byasking them . . . $ Focus on

Debt, Not the Big Projects

Don’t assume that youneed to undertake majorcapital projects to correctall the business’s flaws.Buyers want to see highprofits, not debt, and theymight have the resources,such as underused realestate, for example, thatwill enable them to correctyour company’s flaws ontheir own. Speak to youraccountant or lawyerabout the best course of action.

You might be ready to sell or pass your company to your heirs; what type of transition is right for you and your business?

30

THE TRANSITIONING COMPANYFinance

Possible Benefits

• Usually a company familiar with, and successful in, your industry.

• Financial benefits to you and your employees.

• You’ll realize tax benefits with the ESOP using tax-deductible corporate earnings to buy stock from the owner.

• Capital gains tax on the sale is deferred.

• Employees know the business well and usually have strong ties to the company.

• You know the buyer – little risk for surprises.• Usually someone who knows the business

well.

• You usually know the buyer(s) very well.• Usually someone who knows the business

well.

Transition

Sale to Another Company

Sale to Employees (ESOP)Many small business owners developstrong ties to their employees. If you feelthis way – or if your company looks like itwould be a hard sell to outsiders basedon market conditions or the kind ofindustry you’re in – you can sell it to youremployees through an Employee StockOption Plan (ESOP); (see The GrowingCompany, Compensation & Benefits onpage 18). You can transact the salethrough an existing ESOP or set the planup expressly for the transition.

Sale to Family Member(s)

Sale to Co-owner(s)

Some Considerations

• What happens to your employees? Are they absorbed, moved or out of a job?

• Most such transitions take several years.

• Employees can be reluctant to make changes.

• Not for small mom-and-pop shops; usually for companies whose sales total in the millions.

• Often difficult to mix family and finances, especially when there is not an equitable distribution between family members.

• More difficult transaction when co-owners are family members.

• Can change friendships/relationships post-transaction.

TYPE OF BUSINESS TRANSITIONS

31

There are several methods to determine the accurate valuationof your business; your accountant or a valuation specialist willknow the best way for your specific situation and goals. Factorsthat play into these formulas include the state of the economy,growth prospects of the industry, the company’s outstandingobligations and/or its need for capital expenditures to stay com-petitive or, if applicable, a pressing need to sell.

When you have a precise valuation, work with your accountantor financial planner to compare it to your total annual com-pensation and what you determine you’ll need after your transi-tion. If your probable sale price won’t meet your needs, it’s timeto work on improving performance before selling. If you’redetermined to cut back on your own involvement with thebusiness right away, a good manager might be able to achievethe needed growth spurt before a sale.

Don’t be tempted to change accounting practices to make the business look more attractive. Professionals are trained toeasily spot such actions, which can seriously derail your transi-tion plans.

Are you ready?What do you want/need from the transition? After determining that the company’s valuation supports thetransition and that the business is ready to sell, you’ll need tocalculate your personal financial needs. First, consider what itcosts to support your lifestyle (now and in the future) and what obligations you have (or will have), e.g., help for an aging parent or subsidy of a child in college, for example).

Then ask yourself one of the hardest questions you’ll ever face:what do you want to do now? And be honest with yourself:• Will you retire?• Start a new business (which will require capital)?• Get another job?• Stay on as a consultant to the business you are selling?

Each option will come with a different expense and incomeprofile. Once you’ve figured out your life’s next chapter, consider your income needs. You’ll need to factor in the long-term income you can count on from the proceeds from thetransition, your savings and any future income. Then you canwork with your accountant or lawyer to structure your transi-tion – and payout – in a way that suits your needs.

If you sell to an individual, chances are you’ll get cash, either ina lump sum or in installments. But you might also negotiate aplan to lease some of your assets to the buyer, so you’ll haveongoing income. (This could ease the upfront burden on thebuyer, as well.) If you sell to your employees or to a corpora-tion, you might receive cash plus stock or options. Whether yousell to an outside party or an employee, you might negotiate acontract to stay on as consultant at a set fee for a period oftime. Work with your advisors to structure a deal that will meetyour future needs.

Tie up all the loose ends to make your business attractive to buyers. A checklist should include the following elements:

❑ All company financials are ready to be audited.

❑ Audits and other records should be ready for inspection byprospective buyers.

❑ All taxes are paid.

❑ Verbal contracts with vendors and key employees have been putin writing (non-compete or “retention” agreements for employeesare key in some fields).

❑ Leases and other contracts that are due to expire have been rene-gotiated (although the buyer might want otherwise). Ensure thatall contracts will be honored, no matter who owns the business.

❑ You have developed a selling memorandum detailing the busi-ness’s financials, its assets and its potential; the memorandumsummarizes what it is you are offering to prospective buyers.

LOOSE-END CHECKLIST

32

THE TRANSITIONING COMPANYCompensation & Benefits

$

$

Make Sure the Buyer’s Finances Are in Order

If you’re not getting fullpayment for your com-pany up-front, ask youraccountant or lawyer toinvestigate the buyer’sfinances and history thor-oughly. Understand that ifyou hold a note for part ofthe sale price and thebuyer encounters financialproblems, you might haveto compete with othercreditors for repayment. Insuch cases, there are dif-ferent classes of creditors;be sure that you are in thesecured creditor class –that the debt to you issecured with some kind of valuable collateral.

If You Stay On . . .

The buyer might ask that part of your compensa-tion, if you take on a con-sulting role or have someinvolvement in the busi-ness, be tied to the com-pany’s future performance.Any such offer, whether it involves stock or otherarrangements, should be examined carefullybecause of the risk it carries.

▲ How do I account for my income and benefits around the transition?

▲ How can I safeguard my interests if I’m not receiving full payment up-front?

▲ What kind of financial plan do I need for the proceeds from the deal?


Base your income on your post-transition plans.With a realistic vision of your business, your future financial needs and your life goals, you can struc-ture a compensation plan that can make your vision a reality. If you are passing your company to yourheirs, your compensation once the transition is done will depend largely on your savings from salary,bonuses, retirement and other benefits that you have established over the years; unless you plan toretain an equity stake or other tie to the company once your successors take over.

If you are selling the company, your compensation can be structured in any of several ways. You mightreceive the sale price in one lump sum; however, most small business owners don’t receive full pay-ment up-front. Many transactions are structured so that part of the payment is deferred or paid as equityin the buyer’s company. You might hold an installment note under which the buyer agrees to pay youset amounts over time. Or you might retain ownership of key real estate or equipment and lease it backto the buyer; this can afford you additional income after the sale. Work with a professional – typicallyan accountant, investment banker or lawyer – who specializes in such sales to create a compensationpackage that will reward you fairly and securely and be advantageous to the buyer, as well.

Prepare a financial plan for the proceeds from your sale.Whatever the terms of the sale, it makes sense to plan what you will do with the money. First, you’llhave to pay capital gains taxes on any cash proceeds from the sale in any year in which you receivethem (unless you’re selling through an ESOP). Then, you’ll need to protect the remainder and help itgrow to provide for your future needs. Do you already have a well-funded retirement plan? Have youdone your estate planning? The plans and instruments you have in place might need to be updatedbased on the terms of your transition. It’s worth your while to consult your accountant or financialprofessional well in advance of the sale. You should also consult a financial professional regardingemployee compensation and the security of retirement and other benefits.

THE TRANSITIONING COMPANYInsurance

33

$ Start theInsurance BallRolling Early

If you are working with aninsurance professional toupdate your coverage,keep in mind that somepolicies take a while toimplement. Apply forthese early enough sothat everything is in placewhen you are ready forprospective buyers tocome calling.

For a more in-depthdescription of various business-related insurancepolicies, see The GrowingCompany section onpages 21–23.

▲ How do I ensure that my coverages are sufficient and up-to-date, both as an attraction for buyers and in the event that insurance will be part of the transition?


Be sure prospective buyers find your company adequately covered.If you are transitioning via a sale, review your insurance situation with an insurance professional to be sure there are no red flags that will scare off a prospect. If you are underinsured, this could signalmismanagement of the company or artificially high profit margins. Key Person Insurance can beimportant to a buyer when certain employees are integral to a company’s continued success.

Make sure your risk management program is ongoing and effective. A comprehensive risk management and safety program can help in a sale. And lack of one can be adeterrent to buyers. Clean up any obvious safety hazards, and implement and enforce safety precau-tions if necessary. Depending on your business, prospective buyers will want to look at your accidentand injury history, and you want as clean a record as possible. A well-trained workforce with a solid his-tory of managing risk and maintaining safety will be much more attractive than one that will have tostart from square one.

If an insurance policy will be part of your transaction, be sure it is in place.In some cases, and if your permanent life insurance policy has built up sufficient cash value, a compa-ny might borrow against that cash value to enable a partner or employee to buy all or part of theowner’s stake. If this kind of arrangement will be part of your transition, work with your insuranceadvisor to make sure you have the coverage and flexibility well before you need it. Remember thatloans and withdrawls may be subject to penalties and fees and will reduce the death benefit.*

If you will be staying on with the company, make sure you have allnecessary insurance protection. If you plan to retain an ownership stake in the company or if you are staying on in a managementcapacity, you’ll want to be sure all of your coverages are adequate and up-to-date. That way, you can besure your investment is protected, even if you’re not involved on a day-to-day basis.

* Both loans and with-drawals from a perma-nent life insurance policymay be subject topenalties and fees and,along with any accruedloan interest, will reducethe policy's accountvalue and death benefit.Assuming a policy is nota Modified EndowmentContract (MEC), with-drawals are taxed onlyto the extent that theyexceed the policyown-er's cost basis in thepolicy and usually loansare free from currentfederal taxation. A poli-cy loan could result intax consequences if the policy lapses or issurrendered while a loan is outstanding.Distributions from MECsare subject to federalincome tax to the extentof the gain in the policyand taxable distribu-tions are subject to a10% additional tax priorto age 591⁄2, with certainexceptions.

Family Matters

If your assets warrant, set up trusts to protect your hard-earned wealth.Your will has probably been drafted, you’veplanned for your retirement and other financialneeds and obligations, and structured your tran-sition. But if you’ve accumulated significantassets, it’s time to consider what will become ofthem when you depart this world. If you’re notcareful, the tax collector could wind up with abigger chunk of your estate than necessary.

Despite what Congress may enact, it’s vital thatyou consult your tax advisor to plan for yourfuture and your family’s.

If your business and other assets are substantialenough to exceed any applicable estate taxexclusions, current tax rates can require yourheirs to pay one-third to one-half of the remain-der of your estate. Fortunately, there are stepsyou can take to reduce your heirs’ tax burden,and trusts are chief among them.

TrustsA trust is simply composed of assets given overto a trustee. You can create a trust with personaland/or business assets. Testamentary trusts arecreated through your will and activated on yourdeath. Living trusts are created while you arealive, but they can continue after your death ifyou stipulate that they should. There may begift tax implications to these arrangements.

34

THE TRANSITIONING COMPANYPlanning For Your Life and For Your Future

▲ Can I use estate-planning trusts to ensure the financial security of my heirs?


Considerations

• Assets above and beyond the exclusion amount pass directly to spouse estate-tax-free due to unlimited marital deduction

• Assets equal to the exclusion amount directed into a Credit Shelter Trust with no tax due

• Can purchase life insurance policy for survivor upon death of insured

• Living trust in which grantor retains an interest in assets, and is paid income for specified time period

• Often suitable for single, divorced or widowed people• At end of term, assets in trust pass to one or more named beneficiaries

• Death benefit paid by life insurance policy is placed in trust and may be excluded from the taxable estate

• Can purchase a policy insuring either husband or wife, or a policy insuring both husband and wife; benefits would be paid out only upon death of second person

• Donate money or property to a charitable organization, but donor receivesincome while living

• Beneficiaries receive any income and the charity receives the principal aftera specified period of time

• Grantor avoids capital gains tax on the donated assets, gets an income tax deduction and asset is removed from the estate, reducing subsequent estate taxes

• Long-term trust planned to last for specific or unlimited generations into the future

• Often used to fund higher education for multiple generations

Trust

Credit Shelter Trust

Grantor RetainedAnnuity Trust(GRAT)

Life InsuranceTrust

CharitableRemainder Trust

Dynasty Trust

DIFFERENT TYPES OF TRUSTS

90% of U.S. businesses

are family-owned.

However, only30% of

family-run companies today succeed into the

second generation.

An even smaller 15% survive

into the third.Source: U.S. Small Business

Administration, Emerging Business Series,

May 2009

Several types of trusts to consider include:Credit Shelter TrustThis type of trust can help with tax planning.Many spouses leave their estates to their surviv-ing spouse in the form of two trusts. Assetsabove and beyond the deceased spouse’s appli-cable exclusion amount either pass directly tothe surviving spouse or are directed to aMarital Trust, or “A” Trust, for the benefit of thesurviving spouse. In either case, the assets arereceived estate-tax-free due to the unlimitedmarital deduction; however, they will beincluded in the surviving spouse’s estate.

Assets equal to the deceased’s applicable exclu-sion amount are often directed into a CreditShelter Trust, or “B” Trust, resulting in no taxdue. Assets within the trust and any appreciation of those assets should not be included in the sur-viving spouse’s estate, thereby reducing the estatetax incurred at the second death. The CreditShelter Trust can also purchase a life insurancepolicy on the life of the surviving spouse; upondeath of the insured, the life insurance proceedsare received by the trust free of income taxes andestate taxes.

Grantor Retained Annuity Trust (GRAT)This type of trust is another way to help withtax planning. It’s a living trust in which you, thegrantor, retain an interest in the assets in thetrust for a specified time period. These trusts areoften suitable for single, divorced and widowedpeople who won’t have two estate exclusions attheir disposal. GRATs let you place a portion ofthe stock in your company in trust for yourheirs. You retain an interest in the company andthe trust pays you an income stream for a speci-fied time period. Because you hold an interestin the stock owned by the trust, its value is discounted and its gift tax liability is reduced.

At the end of the trust term, any assets in thetrust pass to one or more named beneficiaries(e.g., specific family members or even a lifeinsurance trust, which can use the assets to helpfund the life insurance held by that trust).

35

Life Insurance TrustsThis type of trust is another tax-advantaged method for passing wealth to the heirs of a large estate. With this arrangement, the death benefit paid by the lifeinsurance policy is placed in trust and excluded from the taxable estate. You canuse shares in the company or other assets to set up the trust, and you can buy onelife insurance policy insuring either husband or wife, or a policy insuring bothhusband and wife; the benefits would be paid out only on the death of the secondperson, when estate tax would be due.

Charitable Remainder TrustThis type of trust is a way to support a worthy cause while helping to secure yourown future. An arrangement is made to donate money or property to a charitableorganization, but the donor continues to use the property, and/or receive incomefrom it while living. The beneficiaries receive any income and the charity receivesthe principal after a specified period of time. The grantor avoids any capital gainstax on the donated assets, and also gets an income tax deduction for the fair market value of the remainder interest that the trust earned. In addition, the asset is removed from the estate, reducing subsequent estate taxes. While the contribution is irrevocable, the grantor may have some limited control over theway the assets are invested. There are three primary types of CRTs: a charitableremainder annuity trust (which pays a fixed dollar amount annually), a charitableremainder unitrust (which pays a fixed percentage of the trust’s value annually),and a charitable pooled income fund (which is set up by the charity, enablingmany donors to contribute).

Dynasty TrustThis type of long-term trust is planned to last for specific – or unlimited –generations into the future. This is also known as a “legacy” or “perpetual” trust.Dynasty trusts are designed to last beyond the time period allowed by the RuleAgainst Perpetuities, which has limited trust durations in most U.S. states (abouthalf of the states follow the Uniform Statutory Rule Against Perpetuities).Dynasty trusts are often used to fund higher education for multiple generations.

Whatever trust you choose, be sure to have a knowledgeable professional set it up toensure it conforms to IRS rules.

36

THE TRANSITIONING COMPANYYour World

▲ How important is my professional network during the transition?


Role in Transition

• Help decide if you’re in a favorable position to sell.• Compile documents for presentation to potential buyers.• Make a valuation of your company that’ll be used to set asking price.• Help structure deal to avoid negative tax consequences and put estate

planning instruments in place.

• Verify that all coverages a buyer would want to see are in place.• If insurance policy is part of transaction, they can ensure that it is in order.

• Draft any contracts, leases or employee “retention” or non-compete agreements that will be in effect after the transition.

• Draft the transition agreement.• Help qualify potential buyers.

• Help secure the best and most realistic price for business.• Itemize the value of various components of the business.

• Help you plan what to do with the proceeds from the transaction.

• If still involved, must sign off on the impending transition.• Offer insight on how they structured their wealth, and may have ideas

on opportunities or businesses in which to invest.

• Help assess the prospects and timing of a transition.

• Invite businesses to submit bids to buy your company.

• Need to assess whether they are qualified to run the business.

Professional

Certified PublicAccountant

Insurance Professional

Lawyer

Business Appraiser

Investment Advisor

Strategic Partner/AngelInvestor/VentureCapitalist

Independent Advisors

Business Broker/Investment Banker

Buyer/Successor

THE PROFESSIONAL NETWORK’S ROLE IN THE TRANSITIONING COMPANY

$

Continue to build your network as you prepare for your transition.As you transition out of your business, or into a lesser role in it, it might seem like you have less need for the network you havecreated. On the contrary, you need it more than ever.

In addition to those early contacts, you should also seek out aprofessional who can consult on valuation, a business broker or investment banker who will invite the submission of bids for your business and, most important, a buyer/successor. Thefollowing key individuals were addressed in the previous sec-tion, but you may need them for different purposes during your transition.

Certified Public AccountantYour accountant is a key player during your transition. Now isthe time to make sure taxes and other bills are paid, receivablesare collected or written off, and all is in order. The accountantcan audit the books and help you decide if you are in a favor-able position to sell, compile other documents for presentationto potential buyers, and make a valuation of your company that will be used to set the asking price. (Be sure to use an accountantwho has experience in valuations.) He or she can help structurethe deal to avoid negative tax consequences and put estate plan-ning instruments in place.

Make Sure the Team Plays Well Together

Some of the functions of the transition can beperformed by more thanone type of advisor.Valuations can be madeby accountants, businessappraisers or investmentbankers. If you can affordit, it’s not a bad idea toget valuations from morethan one source, becausethey’ll approach the question from differentviewpoints, and propervaluation is key to gettingthe best deal. If you douse different advisorswhose expertise mightoverlap, be sure thateveryone understandswho will be the key negotiator, so that youdon’t have a lawyer andan investment bankerboth trying to negotiateterms independently andinadvertently weakenyour side.

37

$Insurance ProfessionalYour insurance professional can verify that allthe coverages a buyer would want to see are inplace, and if not, can bring you up to date. If aninsurance policy is to be part of the transaction, he or she can ensure that it is in order, as well.

LawyerYour lawyer is the person who will draft anycontracts, leases or employee “retention” ornon-compete agreements that will be in effectafter the transition. He or she will also draft thetransition agreement, whether it is an outrightsale or other arrangement, and handle the closing. It’s important to use an attorney whospecializes in such transactions. The attorneyshould be able to spot any contract terms thatcould work against you. Your tax and estateplan should be worked out before the sale goesthrough, so you can achieve maximum benefits.The lawyer can also help to qualify potentialbuyers to be sure they can live up to the termsof the deal.

Business AppraiserYou can ask your accountant for a valuation of your business, but a professional business appraiser – who specializes in business valuations in your particular industry – can be invaluable in your effort to secure the best and most realistic price. (Overpricing can be adeterrent to the sale, while underpricing meanslost money.) Business appraisers can also item-ize the value of various components of the business – equipment and real estate, for exam-ple – or they can work with other appraisal specialists to do so. Be sure your appraiser hasearned accreditation from a business appraiseror valuation trade association. (There are abouthalf a dozen or so, and all are acceptable.) Legalproceedings typically recognize only valuationsand appraisals made by credentialed appraisers.

Investment AdvisorAn investment advisor can help you plan whatto do with the proceeds from the transactionand how best to safeguard it, particularly if youare retiring; it will be a major source of incomein retirement.

Strategic Partner/Angel Investor/ Venture CapitalistAny of these players who are still involved withyour business must sign off on the impendingtransition. In some cases, debt repayment or distributions on investments will be due. (In some cases, they might be the buyers.) At thesame time, they could offer valuable insight onhow they structured their own wealth, and mayhave great ideas on opportunities to consider orbusinesses in which to invest. Use their expertise,but also learn from their own experiences.

Independent AdvisorsAdvisory boards can help assess the prospectsand timing of a transition, whether sale or succession.

Business Broker/Investment BankerA business broker will invite businesses to sub-mit bids to buy your company. An investmentbanker will do the same, but usually works withonly the biggest deals. He or she has access topotential buyers beyond your local area andthey’ll often have deeper pockets. A deal handledby an investment banker often commands ahigher price. Investment bankers can also make abusiness valuation and help structure the deal.

Buyer/SuccessorIf you are planning to pass your business to afamily member, you need to assess whether heor she is qualified to run the business youspent years to build. Ideally your successor willhave worked with you and gained experiencein the company so that you both can make aninformed decision.

You’re Not Locked Into One Business Entity

Once the company’s operations are well under way, growth strategies might be better served bya different business structure. As a sole proprietor, you might want to take on a partner to easethe workload or reward a key employee with a stake in the company. Or your company mightenjoy greater growth than you envisioned and you might opt to incorporate and issue stock. Beaware that some changes are more difficult than others, but they can be accomplished with thehelp of lawyers, accountants or other professionals.

Whether you’re just starting out, expanding/changing your business or looking to sell, it’simportant that yourunderstanding of business structures is sound. See page 38.

$

More ThanMoney

Remember the impor-tance of your “psychicincome” during the transi-tion. Money is a factor,but your personal satis-faction and happiness isanother. If you are stayingon after the sale, makesure the chemistrybetween you and thebuyer is good. It’s alsovital that the roles andresponsibilities are clear,and that what you arebeing asked to undertakeis personally interesting to you and complementsyour strengths. On theother hand, if you’re plan-ning to hit the beach,make certain you areready for that, as well.

38

DISCUSSION GUIDEStructuring Your Company

Key Elements

• Set-up costs are minimal; there’s no complex documentationto go through and no state fees.

• Business income is taxed as personal income and is subject to self-employment tax.

• Insurance can mitigate liability to some extent.

• Set-up costs are minimal with no state fees or documentation.

• Experts recommend a written agreement spelling out the partners’ responsibilities, how decisions will be made, how money will be spent, how profits will be split and how theseterms will be adjusted if one partner is unable to meet his or her responsibilities, how new partners will be added, and how the partnership will end.

• Business proceeds are taxed as the partners’ personal income.

• The limited partners’ liability is based on the percentage of their investment.

• The general partner(s) bear(s) the remainder of the liability and is/are responsible for day-to-day operations.

• In addition to the partnership agreement, many states requirethe partners to file a Certificate of Limited Partnership.

• One partner is not liable for another partner’s misconduct or negligence.

• Depending on the state, partner’s personal liability for debts, obligations and liabilities of the partnership, whetherarising in tort, contract or otherwise, is limited, except that a partner can’t eliminate or limit liability for his own negli-gent, wrongful acts, errors or omissions.

• Depending on the state, may only be used for certain pro-fessional uses (e.g., lawyers, accountants, architects)

• As with a general partnership, profits are allocated among the partners for tax purposes.

• As previously noted, states vary significantly as to the limitation of a partner’s liability.

• The corporation, not shareholders, is liable for its obligations.

• Incorporation requires start-up fees and complex documentation.

• Corporate entities are monitored by various governmental agencies and must comply with a variety of rules.

• Tax-free benefits, such as insurance, travel and retirement plan deductions.

• Transfer of ownership facilitated by the sale of stock.

• Change of ownership need not affect management.

• Unlimited life.

• Easier to raise capital through the sale of stock and bonds.

• The law allows for an unlimited number of owners, called members, to invest in an LLC.

• The relationships among an LLC’s members are in its Operating Agreement.

• Limited life in certain states.• If LLC satisfies certain IRS requirements, can be treated by

IRS as a partnership.

Structure

Sole ProprietorshipAn individual or married couple.

General PartnershipHas two or more owners (who aren’t a married couple).

Limited PartnershipSimilar to a general partnership, but has two classes of partners: limited and general.

Limited Liability PartnershipSimilar to a general partnership but, depending on the state,some or all of the partners have limited liability.

CorporationA corporation is a legal entity, with a charter granted by the state inwhich it is headquartered. It can sell shares of stock to raise money;shareholders become part-owners based on the size of their investments.

S Corporation is intended for businesses that don’t call formassive amounts of capital; they are legally allowed to have up to 100 shareholders and to issue just one class of stock. Incomeearned by the corporation is taxed as shareholders’ personalincome. S Corporation shareholders are exempt from personal liability for business debt.C Corporation status allows for an unlimited pool of sharehold-ers. Stock can be issued in different classes, with different rightsfor shareholders. The corporation itself must pay taxes; businessproceeds are taxed again when paid to shareholders as dividends.

Limited Liability CompanyA hybrid entity that shields owners’ personal assets from businessliability, but allows the returns they earn to be taxed once, as per-sonal income.

GUIDE TO STRUCTURING YOUR COMPANY

Places to Go for Additional Information

39

The Business Owner’s Playbook Websitewww.thehartford.com/businessowner

The Hartford Websitewww.thehartford.com

BankingEntrepreneur.comwww.entrepreneur.com/bestbanks

BusinessU.S. Small Business Administrationwww.sba.govwww.business.gov

Minority Business DevelopmentAgency www.mbda.gov

National Federation of IndependentBusinesseswww.nfib.com

U.S. Economic DevelopmentAdministrationwww.eda.gov

Business AppraiserAmerican Society of Appraiserswww.appraisers.org

Institute of Business Appraiserswww.go-iba.org

Business BrokerInternational Business BrokersAssociation, Inc.www.ibba.org

Certified Public AccountantsAmerican Institute of Certified Public Accountantswww.aicpa.org

GoodAccountants.comwww.goodaccountants.com

Financial AdvisorsCertified Financial Planners®www.cfp.net

Investor Protectionwww.finra.org

InsuranceThe Hartfordwww.thehartford.com/business

Independent Insurance Agents &Brokers of Americawww.iiaa.org

Insurance Information Institutewww.iii.org/smallbusiness

Investing The Hartfordwww.hartfordinvestor.com

Morningstar, Inc.www.morningstar.com

The Investor’s Clearinghousewww.investoreducation.org

U.S. Savings Bondswww.publicdebt.treas.gov

U.S. Securities and ExchangeCommissionwww.sec.gov

Investment AdvisorsInvestment Advisor Magazinewww.investmentadvisor.com

InvestorsVenture Capitalist Associationwww.nvca.org

vFinance, Inc.www.vfinance.com

Labor/EmploymentU.S. Department of Laborwww.dol.gov

LegalAmerican Bar Associationwww.abarnet.org

Professional Coach/MentorInternational Coach Federationwww.coachfederation.org

SCORE – Counselors to AmericanSmall Businesswww.score.org

Retirement Planning AARPwww.aarp.org

Social Security Administrationwww.ssa.gov

Taxes Internal Revenue Servicewww.irs.gov

The Internet addresses of other companies’ websites are provided in this guide for users’ convenience only. The Hartford FinancialServices Group, Inc. and its affiliated companies (collectively, “The Hartford”) do not control or review the listed sites or any contentappearing on the sites, nor does the provision of any address imply an endorsement or association of non-Hartford websites. The Hartford is not responsible for, makes no representation or warranty regarding, and does not endorse, certify, approve, or warrant the quality, reliability, or performance of any goods or services associated with, used in, marketed through, made availablethrough, or provided through the listed sites, or the contents, completeness, accuracy, or security of any materials on such sites. If you decide to access such non-Hartford sites, you do so at your own risk and Hartford shall not be liable for any damages, lossesor liabilities of any kind or nature related to or arising out of any content on the listed site.

ADDITIONAL INFORMATIONBusiness Resources on the Web

40

NOTES

About The Hartford Celebrating 200 years of helping its customers

achieve what’s ahead, The Hartford (NYSE: HIG) is

an insurance and wealth management company.

Through its unique focus on customer needs, the

company serves businesses and consumers by

providing the products and solutions they need to

protect their assets and income from risks and

manage their wealth and retirement needs. A

Fortune 100 company, The Hartford is recognized

widely for its service expertise and as one of the

world’s most ethical companies. More information

on the company and its financial performance is

available at www.thehartford.com.

These materials are provided “as is” and for information purpos-es only. The Hartford makes no representations or warrantiesthat the materials are suitable for your needs, are complete,timely, reliable, or are free from errors, inaccuracies, or typo-graphical mistakes. The Hartford disclaims all warranties, expressor implied, including, but not limited to, implied warranties ofmerchantability or fitness for a particular purpose or non-infringement of others’ rights. These materials provide generalinformation, and should not be construed as specific financial,insurance, tax, legal, or accounting advice. This information iswritten in connection with the promotion or marketing of thematter(s) addressed in this material. The information cannot beused or relied upon for the purpose of avoiding IRS penalties. Aswith all matters of a tax or legal nature, you should consult withyour own tax or legal counsel and qualified advisor. The Hartfordshall not be liable for any direct, indirect, special, consequential,incidental, punitive, or exemplary damages in connection withthe use by you or anyone of the information provided here or forlink to or use of any website referenced herein.

The precise coverage afforded by any policy of insurancedescribed herein, is subject to the terms and conditions of thepolicies as issued.

Distributed by Hartford Security Distribution Company, Inc.

You may copy this brochure only for non-commercial, personaluse. You may not otherwise copy, sell, or distribute or modify thecontents of this brochure for any commercial purpose withoutprior written consent of The Hartford.

“The Hartford” is The Hartford Financial Services Group, Inc.and its subsidiaries, including the issuing companies of HartfordLife Insurance Company, Hartford Life and Accident InsuranceCompany and Hartford Life and Annuity Insurance Company.

With The Hartford Behind You, Achieve What’s Ahead of You.®

For additional information, visit www.thehartford.com/businessowner

The Hartford Small BusinessOwner Survey was conductedin December 2009 with a ran-dom sample of 1,575 businessowners with under $15 millionin revenue. It has a margin oferror of +/- 3 percentage points.

The Hartford Small BusinessPanel was conducted in May2010 with a random sample of503 owners and decision makersof businesses with fewer than 50employees. It has a margin oferror of +/- 4 percentage points.

© 2007, 2010, 2011 The Hartford Financial Services Group, Inc., Hartford, CT 06155 All Rights Reserved. 104625

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THE BUSINESS OWNER’S PLAYBOOK · 2011-05-02 · of running your own business. ... personal assets at risk. Talk to your accountant about a wise amount of personal assets to use,