Welcome to LVED Financial Network LLC
a Joint Venture between LVED.com and Tandem Head
Small Business Risk Management
Risk management is essential for small businesses to protect their assets, finances, and operations. Small businesses are more vulnerable to risks than larger businesses, and have fewer resources to fall back on if something goes wrong. Here are some risk management strategies for small businesses:
Risk identification
A systematic process that involves identifying the sources, likelihood, and consequences of different types of risks
Risk mitigation
A plan that seeks to limit the financial impact on the company if something goes wrong
Monitoring
An essential part of risk management, often handled manually in smaller organizations
Business continuity planning
A formal system and structure that helps reduce the risks to your business, and provides a defined path for recovering from potential threats
401K Plan Reviews
Conducting an annual review of your 401(k) plan is essential to ensure its compliance, effectiveness, and alignment with your retirement goals. Here's a structured approach to guide you through the process:
Review Plan Documents and Compliance
Update Plan Documents: Ensure your plan documents are current and reflect recent legal and regulatory changes. The IRS provides a 401(k) Plan Checklist to assist in this process.
Verify Operational Compliance: Confirm that the plan's operations align with its terms. This includes timely deposits of employee contributions and adherence to contribution limits. Regular internal audits can help identify and correct discrepancies.
THOMPSON COBURN LLP
Assess Investment Performance
Evaluate Investment Options: Analyze the performance of the plan's investment options to ensure they meet the desired objectives. Consider market conditions and make adjustments as necessary.
RUNNYMEDE CAPITAL MANAGEMENT
Review Asset Allocation: Ensure that the asset allocation aligns with the risk tolerance and retirement timelines of the participants. Rebalancing may be necessary to maintain the desired investment mix.
Key Man
Key man insurance, also known as key person insurance or key employee insurance, is a type of life insurance policy taken out by a business on the life of a key employee. This employee is typically someone whose skills, knowledge, or overall contribution are considered crucial to the company's success. The company pays the premiums and is the beneficiary of the policy.
Here are some key points about key man insurance:
Purpose: The primary purpose of key man insurance is to protect the business from financial loss that may occur due to the death or disability of the key employee. The funds from the insurance policy can be used to cover expenses such as hiring a replacement, covering lost revenue, paying off debts, or funding the transition period.
Business Valuation
Why it is important to have a current valuation?
Business owners are sometimes so focused on the day-to-day operations of their businesses that they overlook a large component of their overall wealth — the value of their business. There are several occasions when an owner should consider having a formal valuation performed for their business.
Through a formal business valuation process, you will learn what the fair market value of your business is, or what a hypothetical buyer would be willing to pay for your business. You should have a business valuation handy at all times for a variety of important business and personal financial planning reasons such as planning for a sale of the business, retirement, estate planning or business strategy. And when you have a valuation performed, you want one that is accurate and will hold up in case of litigation.
1. Selling your business – As the economy continues to recover and M&A deal flow improves, many business owners are looking to cash out. In order to be well informed during price negotiations, it is important to have an accurate idea of what your business is worth and how a buyer may be viewing the cash flows of the company. Performing a business valuation early in the planning process (potentially years before a sale), can help you achieve a more favorable outcome as you will have a better understanding of the value drivers of your business. By planning early, you can actively improve these value drivers to maximize the realized value during the exit.
2. Retiring – If, like many business owners, the sale of your business is your retirement plan, you need to know the value of one of your biggest assets to better plan for retirement. Your perception of your business’ value may be very different from what the pool of potential buyers is willing to pay. Understanding the fair market value of your business will allow you to have more confidence in your planning process and help you achieve your retirement goals.
3. Planning Your Estate – Your business may be a critical part of the estate you plan to pass on to future generations or other family members. If the estate is sizable enough, an estate planning transaction may draw some attention from the IRS. Filing a well-supported and documented valuation with your gift tax returns will help defend the value of the business to taxing authorities, especially if certain valuation discounts are applied.
4. Managing your business – Similar to the way you might follow the stock price for a public company, tracking the per share equity value of your privately held business can be an effective way to measure performance or set management incentives. A valuation professional will be able to set up a framework to help identify changes in the business that could improve value. This information and the perspective of an independent third-party appraiser can help you decide how to allocate resources and invest to drive growth.
5. Defending Your Value – It is particularly important to have a well-supported valuation when there is a possibility that the value of the business may be contested as part of a shareholder dispute, purchase or sale process, or a divorce.
You might be tempted to minimize costs during these already expensive processes but a more robust analysis can differ significantly from a high level estimate generated from the use of valuation shortcuts. A thorough analysis will be more reliable, supportable and defendable when disputed.
Article from St Louis Business Journal 2017 Ben Morgan
Cross Purchase Agreements
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A cross-purchase insurance policy is a financial arrangement commonly used in businesses with multiple owners to ensure a smooth transition of ownership in the event of an owner's death, disability, or departure. In this setup, each owner purchases a life insurance policy on the lives of the other owners, pays the premiums, and is the beneficiary of these policies. If an owner passes away, the surviving owners receive the insurance proceeds, which they use to buy the deceased owner's share of the business from their estate. This ensures that the business remains with the surviving owners and provides liquidity to the deceased owner's heirs.
Advantages of Cross-Purchase Agreements:
Tax Benefits: The life insurance proceeds received by the surviving owners are generally income tax-free.
Creditor Protection: Since the policies are owned individually, the proceeds are typically not subject to the business's creditors.
Step-Up in Basis: The surviving owners receive a step-up in the cost basis of the purchased shares, potentially reducing capital gains taxes if they sell the business in the future.