As the owner of a privately owned family business, whether small or global, you have two responsibilities -- protect your family and protect your business. A recent MassMutual Business Owner Perspectives study revealed that 80 percent of Latino business owners plan to pass their business on to a family member. With family, business, and community so closely intertwined, it's important to ensure that your business and family are prepared for the expected and unexpected.
For many business owners, it is the dream of retiring in comfort and watching the family grow the business that drives them to work so hard. MassMutual provides the following tips to make sure your family and business goals are attainable:
1. Create a Succession Plan
Two out of three Latino business owners think about who will take over running the business, if they or another owner leaves the business, becomes disabled or dies. A formal succession plan should be documented in writing and detail what is going to happen down the road upon the owner's death, retirement, or transfer of the business to the next generation.
The plan details who will own the business and who will manage it. There are many ways to structure the plan; some children can be silent partners, have equal ownership, or have a larger share of ownership, along with their management roles. A documented succession plan puts all the family in the know. It's helpful to get family members to sign off on the plan to clarify that they are in agreement with their roles, or lack of them, in the business.
2. Know Your Overhead Expenses
If an unexpected event left a business owner or partner unable to work, the business would still be responsible for its overhead expenses: rent or mortgage payments, loan payments, insurance premiums and utility bills -- not to mention employee salaries. In a situation like this, having a plan in place to cover fixed costs can go a long way to making sure the day-to-day business isn't disrupted by the absence of a key employee.
Fifty-nine percent of Latino business owners indicated that a top-of-mind concern is the affect that their, another owner's or a key employee's disability would have on the business. Business owners can get started addressing this concern with MassMutual's Business Overhead Expense Calculator, which helps determine estimated monthly overhead expenses. The next step would be to make plans to cover business overhead expenses, so the daily operations continue to run smoothly, no matter what happens.
3. Keep Your Retirement Plans in Sync with Your Business
Many Latino business owners haven't given the idea of when they plan on retiring much thought. However, what they did tell us is how they plan to fund that retirement when the time comes. Only half (51 percent) of Latino business owners have invested in a retirement savings plan, such as 401(k) or IRA. The rest will be heavily reliant on their businesses in some capacity to fund their retirements ÔÇô either using proceeds from the sale of the business or continuing to receive income from the business post-retirement.
Diversify your retirement income strategy with assets outside the business to help fund your retirement, helping to avoid placing that financial burden on the next generation and allowing them to effectively run the business and invest in its future.
For family-owned businesses, the consequences of not planning for the future can be personal and close to home. Be prepared by knowing the plans are in place to ensure a bright future for both the business and family. At MassMutual we are here to help get the important conversations started. To learn more about planning for your business or to find a financial professional near you, visit massmutual.com/Latino.
The research was conducted by Hawk Partners for Massachusetts Mutual Life Insurance Company (MassMutual) via a 20 minute online survey of 3017 Latino and 801 general populations business owners from January 23 ÔÇô March 9, 2015. The sampling margin of error for this study is a +/- 4.6 percentage points when looking at the results for the Latino population. These are at a 90% confidence level.