Good evening, and welcome to our small business presentation . We’re delighted to see you and we know you’ll hear some helpful strategies that can help you plan for your financial future. My name is ______________________ , and I am ___________________________________. [If applicable: Joining me this evening are (introduce other participants, CPA or attorney co-presenters & identify their firms)] We are presenting this information today because we assist people like you with their financial situations every day. In less than 30 minutes today, we’ll go over some ideas to help you identify areas of business risk, and learn how to create protection strategies to help mitigate those risks and protect your business. [Discuss break, restroom, refreshment info; cell phone etiquette; how you’ll handle questions from attendees.]
Today’s discussion will address the following topics: The Small Business Environment Four Areas of Importance to Small Businesses, including the risks involved Creating Small Business Protection Strategies, where we’ll discuss Ways to manage the four most common areas of risk Some additional Benefits to Business Planning and Tips on Getting Started A word on AXA Advisors And finally, we’ll have a Question & Answer session
Small businesses are of vital importance to the U.S. economy. In 2006, there were an estimated 26.8 million small businesses in the United States, which: Employed about half of the U.S. workforce, Accounted for more than half of all U.S. non-farm related production, Created 60-80% of all new jobs Small innovative firms produce 13 times more patents per employee than large patenting firms, and their patents are twice as likely as large firm patents to be among the one percent most cited. As you can see, the impact of small business is growing, but [change slide]
… small businesses can also be more vulnerable to demographic and economic change. Consider the following statistics: 1/3 of new employer establishments close within the first two years The annual Small Business Optimism Index has declined over the past few years. (FOR REFERENCE ONLY – OPTIONAL TO MENTION IN PRESENTATION) Small Business Optimism Index Based on a survey – conducted by the NFIB Research Foundation – of small and independent business owners on factors such as: Plans to make capital outlays Expectations of an improvement in the economy Plans for expansion, etc. In other words, running a business carries its share of challenges and risks, but…
[Transition:] The rewards can be great!
Creating small business protection strategies increases your chance of business success. It will help you to manage risk in the four most important areas of your small business. [Refer to slide] Let’s take a look at these one by one.
The first area is the people that make your business run – your employees & executives. They are among your most valuable assets, yet you may face competition from larger companies that offer attractive benefits. Recruiting and retaining quality employees and providing for their needs is of major concern to most small businesses. Did you know that…[Refer to bullets on slide] Yet, only 45% of companies that have fewer than 100 employees offer retirement benefits, whereas 78% of larger companies do. 3 3 US Department of Labor “National Compensation Survey: Employee Benefits in Private Industry in the United States, March 2007”, published August 2007
What can you do? Addressing Risk #1 To retain quality employees, it is important to provide benefits that they need Setting up a retirement plan can cost less than $2,000 Addressing Risk #2 Having a disability plan in place will also help address another area of potential human resources risk. Generally, benefits can boost employee morale, and provide your business with protection against competition or employee disability.
A key factor to consider when developing a plan to provide for employees is the type of retirement plan that will best suit your business. Some Options: Simplified Employee Pension plan (SEP) Suitable for businesses with a handful of employees Low cost, low maintenance Funded with tax-deductible employee contributions No plan document; no need to file annual reports with the IRS Defined Benefit Plan Employees are guaranteed a set payout after retiring Employees cannot contribute; so plan can be expensive for you Employees have no control over investment options SIMPLE IRA Employees can contribute; employer match is mandatory Great for businesses with less than 10 employees Deferred Profit Sharing Plan Employees cannot contribute Contributions vary from year to year, since it’s based on profitability 401(k) Ideal for small businesses with more than 25 employees Match not required by employer
Retaining and rewarding key executives can be an even bigger challenge. As you can see here, there are a couple of risks that make this goal challenging: [Refer to bullets on slide]
Developing a strategy to address these executive risks can be achieved with an executive benefit plan. One such type of plan is the Non-Qualified Executive Compensation Plan, which: [Refer to bullets on slide]
The type of executive benefits is a key factor to consider when developing a protection strategy to address the needs of executives. Executive Bonus Plans Allow an employer to provide executives (and employees of choice) with permanent life insurance Employer pays a portion (up to the entirety) of premiums, which are tax-deductible Employee pays tax on the premium as “other compensation” Deferred Compensation Plans (the “Golden Handcuffs” plan) An unsecured promise to pay future compensation, generally beginning at retirement as a reward for ongoing service If employee leaves s/he forfeits the benefit Split Dollar Plans Life insurance plan that allows employer and employee to share premiums Employer helps to get insurance at a lower premium, in return employer gets a portion of employee’s death benefits, and repayment of outlay if employee leaves Group Carve Out Employer “carves out” or removes higher paid employees from the business’ group term life insurance policy Instead, those employees are provided with permanent life insurance, with employer-paid premiums.
Another key consideration in selecting an executive benefit plan is the benefit features. All plans will not have the same benefits, so a business owner will have to prioritize based on the company. [Refer to bullets on slide]
The second area of risk that you want to manage is protecting your business. Small businesses depend on the person/people who create them. [Read slide]
There are specific programs that protect your business against the loss of a key person. Different than employee benefits, these plans outline what should happen, and who should handle it, if a loss occurred.
Let’s discuss some of the services available to protect the small business owner. Buy-Sell Agreement Details what will happen if a partner is unable/unwilling to continue in the business Gives remaining owner a legal right to purchase the former partner’s ownership interest Also helps with business owners’ estate planning Key Person Coverage Life insurance policy that insures against the death, disability, or departure of a key person in the business Business is provided funds to: cover lost sales/profit; find & train a replacement; and protect the credit position and financial stability of the company Some tax considerations; consult a tax advisor Business Overhead Expense Allows a small business owner to meet everyday expenses, even while disabled Disability Buyout If a partner becomes disabled, policy provides funds to the non-disabled partner(s) to buy disabled partner’s share of the company Employee Stock Ownership Plans Qualified retirement benefit plan Gives employees a vested interest in the business Promotes productivity and a commitment to the long-term success of the company
What about the longevity of your business? Small business owners and employees work hard and take pride in their company. Passing on your business successfully is one way to leave a legacy. But, this may be easier said than done. [Read risk on slide]
Developing a succession plan is one way to safeguard against the risk of business failure when you are ready to move on. [Refer to slide]
A succession plan may be affected by many external factors such as: Business Structure – depending on the type of small business (sole proprietorship, limited partnerships, etc.) there might be additional things to consider Business Valuation – before creating a succession plan, a business owner should know how much his/her business is worth Gifting vs. Selling the Business – might affect the terms of the succession plan and might also have tax implications Tax Impact of Transfer – which will require the input of a tax advisor before an informed decision can be made.
The fourth type of risk we will discuss is personal independence. Many small business owners often channel all of their energy, time and finances into their business, sometimes to the detriment of personal financial welfare. [Read slide] These are people who either love what they're doing, or can't afford to retire. All too often, it seems to be the latter. The small-business owner focuses single-mindedly on building a business today and fails to prepare for retirement security tomorrow.
Separating business and personal planning is important to managing this area of risk. [Refer to example on slide – read table out loud]
A small business owner should always take steps to address personal needs such as: [Refer to slide] All of these issues may impact a small business owner or employee differently than a corporate employee. For example, income fluctuations and differences in benefit plans mean that an entrepreneur needs more customized financial guidance.
You may be so busy running your business, that it’s hard to find time to put together a long-range financial strategy, but it can be a valuable investment in your business. In addition to the four risk areas that we have addressed in our presentation, there are some additional benefits to business planning, such as: Save Time: You can focus more of your time on the core purpose of your business rather than juggling financial tasks Improve Tax Efficiency: Many of the benefits you provide to your employees will also mean tax savings for you Compete Effectively: A solid business plan may give you a competitive advantage over other similar businesses Handle Change: A plan helps you prepare for, and manage sudden changes that affect your business Manage Growth: Growth requires flexibility, and a plan can help you keep up with the business growth cycle
So far, we’ve reviewed the four main areas of risks a small business owner should address. This slide provides action items that you can begin today, once you leave this presentation. [Refer to slide]
While we are on the topic of professional guidance, I’d like to mention some of the ways AXA Advisors is qualified to help you develop a protection strategy for your business: [Refer to slide]
We have come to the conclusion of our presentation. I have a favor to ask of you. Please complete the evaluation form honestly so that we might improve our workshop for others. I will be happy to answer any questions or comment on the things we have discussed today. For more in-depth questions, I’m available for follow-up appointments to help you continue protecting you and your business. (provide contact details) Thank you again for coming.
Small Business Protection Strategies
Small Business Protection Strategies Securities are offered through AXA Advisors, LLC, member FINRA and SPIC. Life insurance and annuity products are distributed through AXA Network, LLC, and its subsidiaries. AXA Advisors and AXA Network do not provide tax or legal advice. Please be advised that this document is not intended as legal or tax advice. Accordingly, any tax information provided in this document is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer. The tax information was written to support the promotion or marketing of the transaction(s) or matter(s) addressed and you should seek advice based on your particular circumstances from an independ4ent tax advisor.
<ul><li>The Small Business Environment </li></ul><ul><li>Four Main Areas of Risk for Small Businesses </li></ul><ul><li>Protection Strategies for the Four Main Areas of Risk </li></ul><ul><li>Benefits of Business Planning and Five Tips on Getting Started </li></ul><ul><li>AXA Advisors & Small Businesses </li></ul><ul><li>Q & A </li></ul>Today’s Discussion
The Big Business of Small Business <ul><li>The 26.8 Million Small Businesses in the United States: </li></ul><ul><li>Employ about half of all private sector employees </li></ul><ul><li>Account for more than half of non-farm private gross domestic product (GDP) </li></ul><ul><li>Have generated 60-80% of net new jobs annually over the last decade </li></ul><ul><li>Produce 13 times more patents per employee than large patenting firms </li></ul><ul><li>The impact of small business is growing, but… </li></ul>Source: U.S. Small Business Administration, Office of Advocacy “Frequently Asked Questions”, August 2007
Risky Business? <ul><li>1/3 of new employer establishments close within the first two years. 1 </li></ul><ul><li>The annual Small Business Optimism Index has declined every year since 2004. 2 </li></ul>1 U.S. Small Business Administration, Office of Advocacy “Frequently Asked Questions”, August 2007 2 “NFIB Small Business Economic Trends”, July 2007 … small businesses can also be more vulnerable to demographic and economic change.
All new ventures carry some degree of risk, but the rewards of entrepreneurship can be great!
Creating Small Business Protection Strategies 1. Provide for your employees and executives 2. Protect your business from unexpected circumstances 3 . Prepare for business transfer or succession 4. Plan for your personal financial independence By managing risk in four different areas How can you increase your chances of business success?
1. Provide for Employees & Executives <ul><li>Retirement is the second biggest benefit concern for employees, after health insurance 1 </li></ul><ul><li>There is a 46% chance that an employee aged 30 will be disabled for 90 days or more; 40% if aged 45 2 </li></ul>1 Transamerica Center for Retirement Studies “The 9th Annual Transamerica Retirement Survey -- workforce survey”, 2007 2 National Underwriter ”Field Guide to Estate, Employee & Business Planning”, 2008 Assessing the Risk:
1. Provide for Employees & Executives <ul><li>Setting up a retirement plan can cost less than $2,000 </li></ul><ul><li>Having a disability plan in place </li></ul>Protection Strategy: Goal Recruit, retain and protect employees
1. Provide for Employees & Executives <ul><li>Which retirement plan best suits your business? </li></ul><ul><li>Simplified Employee Pension plan (SEP) </li></ul><ul><li>Defined Benefit Plan (traditional pension) </li></ul><ul><li>Savings Incentive Match plan (SIMPLE) </li></ul><ul><li>Deferred Profit Sharing plan </li></ul><ul><li>401(k) </li></ul>Key Considerations:
1. Provide for Employees & Executives <ul><li>Median salary for small business CEOs is $233,500 compared to $849,375 for large businesses, according to Salary.com. * Retaining top executives is highly competitive. </li></ul><ul><li>Traditional retirement plans do not usually meet the planning needs of top executives. </li></ul>*Source: Salary.com”Small Business Executive Compensation Survey”, November 2007 Assessing the Risk:
1. Provide for Employees & Executives <ul><li>Executive benefit plans are designed to meet the specialized needs of highly compensated employees </li></ul><ul><li>Example: Non-Qualified Executive Compensation Plans </li></ul><ul><li>No contribution caps </li></ul><ul><li>Can be designed to financially encourage retention </li></ul><ul><li>Inexpensive to set up and maintain </li></ul><ul><li>Can be put in place in less than a month </li></ul><ul><li>Can reduce employer’s current payroll taxes </li></ul>Protection Strategy:
1. Provide for Employees & Executives <ul><li>How might executive benefit options work for your business? </li></ul><ul><li>Executive Bonus Plans </li></ul><ul><li>Deferred Compensation Plans </li></ul><ul><li>Split Dollar Plans </li></ul><ul><li>Group Carve Out </li></ul>Key Considerations:
1. Provide for Employees & Executives <ul><li>How can a business owner prioritize these benefit features? </li></ul><ul><li>Deductibility — Whether or not there is employer tax deduction </li></ul><ul><li>Control — How much control the employer has over the benefits </li></ul><ul><li>Selectability — How employers can select who receives certain benefits </li></ul>Key Considerations:
2. Protect Your Business <ul><li>If your current business partner passes away, their spouse could legally become your new business partner </li></ul><ul><li>The loss or departure of a key employee can mean the loss of profit, clients, proprietary knowledge and specialized skills </li></ul>Assessing the Risk:
Business continuation programs protect against the loss of an owner, partner or key person Protection Strategy: 2. Protect Your Business Goal Protect your business against the loss of a partner or key employee
<ul><li>How can these services protect my business? </li></ul><ul><li>Buy-Sell Agreement </li></ul><ul><li>Key Person Coverage </li></ul><ul><li>Business Overhead Expense </li></ul><ul><li>Disability Buyout </li></ul><ul><li>Employee Stock Ownership Plans (ESOPs) </li></ul>Key Considerations: 2. Protect Your Business
3. Transfer Your Business Only one-third of family owned businesses survive the transition to the second generation. A primary reason for this dismal survival rate lies in poor succession planning. Source: New York State Society of CPAs “Money Management”, July 10, 2006 Assessing the Risk:
Written succession plans outline legal, financial and managerial considerations for transferring a business from one generation to the next. Protection Strategy: 3. Transfer Your Business Goal Successfully transfer your business when you are ready to move on
<ul><li>How do each of these issues affect Succession Planning? </li></ul><ul><li>Family Limited Partnerships </li></ul><ul><li>Business Valuation </li></ul><ul><li>Gifting vs. Selling the Business </li></ul><ul><li>Tax Impact of Transfer </li></ul>Key Considerations: 3. Transfer Your Business
4. Plan for Your Personal Independence <ul><li>The primary source of capital for most new businesses comes from savings and other personal resources. 1 </li></ul><ul><li>Study shows that 47% of small-business owners are not at all confident that they're saving enough for retirement. And more than half indicate that they plan to retire after age 65 or never. 2 </li></ul>1 *www.sba.gov, “Starting Your Business – Finance Start-up”, 2008. 2 Harris Interactive “ShareBuilder Small Business Annual Retirement Trend survey”, 2006. Assessing the Risk:
Maintaining separation between business and personal planning can help mitigate risks and is a good practice. GOAL BUSINESS PERSONAL Pass on assets Succession Plan Estate Plan Retire comfortably Business Continuation Plan Retirement Plan Examples: Protection Strategy: 4. Plan for Your Personal Independence Goal: Plan for your non-business financial needs
<ul><li>How can I plan for each of these needs, regardless of the state of my business? </li></ul><ul><li>Asset protection </li></ul><ul><li>College planning </li></ul><ul><li>Family protection (income replacement) </li></ul><ul><li>Retirement savings </li></ul><ul><li>Retirement income distribution </li></ul><ul><li>Elder care </li></ul>Key Considerations: 4. Plan for Your Personal Independence
Additional Benefits to Business Planning <ul><ul><li>Save time </li></ul></ul><ul><ul><li>Improve tax efficiency </li></ul></ul><ul><ul><li>Compete effectively </li></ul></ul><ul><ul><li>Handle change </li></ul></ul><ul><ul><li>Manage growth </li></ul></ul>
5 Practical Tips on Getting Started <ul><ul><li>1. Survey employees . Ask them about their employee benefit concerns and needs. </li></ul></ul><ul><ul><li>2. Make a list of the employees and executives that are “irreplaceable” to your business. </li></ul></ul><ul><ul><li>3. Make a list of who you would want to replace your position or other key positions if something were to happen unexpectedly. </li></ul></ul><ul><ul><li>4. Review your personal plan . Business owners’ needs change frequently. </li></ul></ul><ul><ul><li>5. Seek professional guidance. A financial professional can help you sort through the information you’ve seen in this presentation, and help you create protection strategies for your business. </li></ul></ul>
AXA Advisors & Small Businesses <ul><ul><li>AXA Advisors can offer: </li></ul></ul><ul><ul><li>Approximately 6,000 financial professionals across the continental U.S., Hawaii, Puerto Rico and the Virgin Islands </li></ul></ul><ul><ul><li>A wide array of small business products and services from hundreds of affiliated and un-affiliated companies </li></ul></ul><ul><ul><li>Retirement plans customized for small businesses </li></ul></ul><ul><ul><li>Planning coordination with business owners’ other advisors (legal, tax) </li></ul></ul><ul><ul><li>Planning services through each business stage — start-up, growth, maturity, transference </li></ul></ul>