Up to this point we have described methods of planning for your business succession using Insurance techniques. The basic concept of this approach uses leveraging your money. For example, we recommend Life Insurance and Disability Insurance because your business value can be protected for literally pennies on the dollar. Using Insurance, you can create a package of tax-free dollars for only 2cents -5 cents for every dollar. This approach must be used to create a true business succession plan. There is another process you should consider to complement your Insurance program. Consequently, I am happy to report that we will investigate using various Investments to protect and provide a fully diversified business succession program.
One of the first concepts I learned in developing a financial planning concept for Retirement and Business Succession is that retirement should be based on a three-tiered plan; Social Security, company sponsored retirement plan (your Business value) and individual savings accounts. We will now turn our attention to investments to plan for a business succession.
I am often perplexed by the various comments that many individuals make when discussing the volatility of investments. Yes, there is a great deal of risk and ups and downs in the stock market. However, you should consider using a diversified approach when investing. Specifically, even if you are young, just starting out or are a well-seasoned investor, I highly encourage all investors to maintain a balance along these different investment vehicles: U.S. equity stocks, international stocks, investment grade corporate bonds, foreign bonds, short-term corporate bonds, real estate, sector funds and alternative investments. We will be discussing each of these different asset classes in the next several articles.
In closing, let me add the reason for using investments in your Business Succession Plan. It again involves diversification. We are going to assume that you will have no need for Life and/or Disability Insurance. So when you retire or a partner retires, how will you afford to take an annual pay-out from your business? Enter in a well-rounded Investment portfolio to help provide funds for a retirement from your business.