A Brighter Way
A Brighter Way
In 1938, gas was 10¢ a gallon. The average wage was $1,730 a year and you could buy a house for a mere $3,900. Since then, typewriters have gone by the wayside. The VCR was invented and then replaced by the DVD. The Internet was born. And, there are significantly more rules and legislation for us to abide by today.
Many things have changed since this firm was founded in 1938. Yet, much of the advice we have shared with business owners over the years has remained constant. We share it with you here in hopes that it helps you.
Our founder, Richard Rea, believed that all business owners needed two things to be successful: a goal and a plan to get there.
"Steps you take today will have an effect on your business in the future. Therefore, if you know what you want your business to be like in five years, there is something you will do differently today," he often said.
While there are definitely other factors that can influence the success or failure of a business, the planning stage is the most important. Mr. Rea believed that too few owners actually thought about this step, and he encouraged them to develop a goal and a plan. Today, we do the same.
When two or more people get together to start a business, Bob Ferguson, CPA, shareholder, Marietta, tells them to consider the three D's: death, disability and divorce.
"Too many times, people assume there will be no problems and no need to separate," said Ferguson. "Then when a problem occurs, there is nothing but hard feelings and distrust."
Make sure you have enough life insurance to cover the buy-out of an owner who dies, said Ferguson. "It's equally important to have a disability insurance plan to cover each owner, as well as a business plan that covers each owner."
As a business owner, you must also look at two different types of divorces – an actual marital divorce and a "divorce" that occurs when one owner chooses to leave the business.
To protect yourself in the event of a divorce from the business, you should have an agreement that specifies how one person can buy the other out – and make sure to review and update it every two years. It should also include language that specifies how the business or remaining owner(s) can acquire the interest of an owner who has died.
"Despite the vows you said on your wedding day, divorce is a reality. Make sure there is a clause that guarantees there will be no ownership by the divorced spouse of an owner," Ferguson said.
For Gene Spittle, CPA, PFS, shareholder, Wooster, there is one consistent piece of advice he gives when advising business owners on succession or estate planning issues.
"I've told hundreds of clients: You don't have to treat everyone equally to treat them fairly," Spittle said. "This has always held true."
Spittle once had to tell a client that he should fire his son. "The client fired me instead, didn't talk to me for three months and was very bitter," he said. "But two years later he did fire his son and the business has now expanded five times over."
This article was originally published in The Rea Report, Summer 2008 issue.
Note: This content is accurate as of the published date above and is subject to change. Please seek professional advice before acting on any matter contained in this article.
