Smart Retirement Planning Tips for the Savvy Business Owner

Smart Retirement Planning Tips for the Savvy Business Owner

Understandably many business owners are focused on “just getting through the year” right now, while others are thriving, pivoting, and looking only forward to maximize growth from new opportunities. A successful or savvy business owner is always thinking, “What’s next?” It could be as simple as what’s the next opportunity, or what’s the next challenge? After all, it’s been that kind of year!

But the biggest questions like, “What’s next for me? Is retirement an option?” are those that only the smartest, most successful business owners ask of themselves and their financial advisors.

Do you have a business retirement plan?

Creating a comprehensive retirement plan for business owners requires a careful understanding of the unique characteristics of the individual’s needs and goals, their family dynamics, the size, and type of business they operate, and the amount of time prior to retirement.

Some businesses are set up to expand and hire more employees, while others have little desire to expand beyond the owner and family members.

Finally, some businesses are sellable and are designed to provide the owner with a substantial portion of their retirement funding needs, while others are primarily set up to generate regular income throughout the owner’s working life. In the latter situation, the owner is less inclined to depend on the sale of their business to adequately satisfy their financial needs for retirement.

What factors should I consider?

The following are important considerations in the development of a solid, well-designed retirement plan to meet the needs of business owners:

  • The size of the business and the number of employees can make some retirement programs undesirable, while others can create a substantial amount of tax-deferred or even tax-free income at retirement. For example, a 401k may be suited to a business that has many employees, while a simple IRA would be better suited to a business with few employees.
  • The composition of a closely-held business can provide opportunities not practical or cost effective for owners of a larger business with many employees. For example, the implementation of a Defined Benefit plan can allow the participants to set aside significantly larger amounts of pre-tax contributions that will lower the business owner’s and the business’s taxes. The inability to limit inclusion of the plan for a business with many employees would make the costs prohibitive and dwarf the tax benefits.
  • How a business is legally constructed can create both retirement plan benefits, as well as estate planning benefits. For example, a family partnership can allow a business owner to create a private annuity sale, allowing the owner in the family partnership to transfer business ownership without estate tax credit limitations and selling the business over an extended period of time to reduce annual income taxes.
  • The type of business, and the industry it is a part of, can be instrumental in determining whether a business is sellable and if it will be able to provide the owner with a sizable portion of their retirement funding. For example, owning a local sandwich shop or delicatessen may provide the owner with adequate income during their working years. But the owner is unlikely to depend on the sale of their store to provide them with sufficient funds for retirement. Whereas, the owner of a mid-size plumbing business has a much better chance of achieving a higher percentage of their retirement funding from the sale of their business.
  • The length of time a business owner has prior to retirement can either restrict or allow for a wider number of retirement planning options. A younger business owner in reasonably good health might chose to look at cash value life insurance policies to build tax-free distribution later, instead of tax-deferred income. Additionally, tax considerations at the time of retirement can play a significant role. Tax-deferred income once distributed becomes taxable and can push the taxpayer into a higher tax bracket, whereas tax-free income avoids that problem.

There is lots more to discuss…

Obviously, this list is a very limited discussion of all of the options available. Your goal should be to strategically create a business retirement plan that minimizes taxes, takes advantage of various aspects of the business, the ownership structure, size, and scope of the business, as well as build-in succession and exit planning strategies.

That’s what we work towards with our business owner clients – we call it developing a Business Owner Master Plan. In fact, we’ve written a 17-page white paper about creating such a plan – you can download the White Paper here or give us a call at 480-346-1283 and we will email you a PDF.

Finally, your business retirement plan, and your Master Plan if you go that route, must be adaptable to changing circumstances, such as tax rules, economic conditions, technological innovations, family circumstances, owner health, change in time, and emerging opportunities. Remember retirement planning is an ever-changing, on-going activity the requires constant vigilance and maintenance…that’s why we meet with our clients three times a year…not just once.

Contact us

Our passion is helping business owners make their success their legacy. We specialize in working with business owners to create integrated financial plans for your personal life and your business; essentially organizing your complete financial life in one place.

Please reach out to us at 480-346-1283, or email if you have any questions, or just want to discuss further.

Underappreciated Tax Reduction Strategies for Business Owners

Underappreciated Tax Reduction Strategies for Business Owners

I think that we can all agree that 2020 has been a long, long year, but one thing that is finally over is 2020’s never-ending tax season! Entrepreneurs feel that they can now move on from that painful task and focus solely on running their businesses…ahhh, but should you? Not so fast!

As of writing this, even though 2020 already feels 18 months long, there are less than five months left in the year. Why does that matter? Because some of the very best tax reduction strategies require time to analyze and implement.

The more intricate the tax strategy, the more analysis, planning and implementation time will be required. Truth be told, some strategies require as much as two months to administratively and operationally complete. In addition, there are important deadlines for setting up these plans for 2020.

Here are a couple of underused strategies that you should talk with us and/or your CPA about sooner rather than later.

The Qualified Business Income Deduction

One of the most underutilized tax reduction strategies is the Qualified Business Income deduction or QBI. It was an important part of the Tax Cuts and Jobs Act tax bill passed in December of 2017, and it allows for the deduction of up to 20 percent of business income, plus qualified real estate investment trust dividends, and publicly traded partnership income.

Do I qualify?

To qualify you must be a sole proprietor, partnership, or S Corp. Additionally there are limitations on the type of trade or business, and the amount of W-2 wages paid. Importantly, income from capital gains, or dividends aren’t considered. As such, for the business owner who may receive both W-2 income and a dividend from the K-1 for their S Corp, strategic planning for wage versus dividends becomes critical.

Specifically, there income limits on who can take advantage of the deduction, after which phase out begins; $163,300 for single taxpayers and $326,600 for married couples. So long as the dividends paid to the owner from the business K-1 is deemed reasonable, and the household income is below the threshold, the more that is paid in dividends, the bigger will be the deduction from the QBI before the dividend is paid. Again, this requires some planning, so consult your CPA or tax professional early on any such strategies.

The 412(e)(3) Plan

Another important strategy that is little understood, even by many tax and financial professionals, is called a 412(e)(3) plan. It has very specific benefits for the right situation. It allows for the owners of a small business with fewer than five employees to contribute substantially more to their defined benefit plan than otherwise would be the case, allowing for a greater tax deduction for this and future years.

A 412(e)(3) plan also provides for secure guaranteed retirement income; it is most desirable for an older business owner with younger employees, especially highly profitable businesses that are likely to continue to be profitable for the foreseeable future. Also, this plan is generally exempt from lawsuits.

Top line…How does it work?

The guarantee comes in the form of a life insurance contract if health is not an issue, or an annuity if otherwise. The contributions can be made by the employer or a custodial trust. The payments are made in frequent level installments until the age of retirement.


Have either of these strategies caught your interest? There are many other considerations that will need to be examined, since these programs have many restrictions and requirements. But if you would like to learn more about them and see if one or both may apply to you, please reach out to the Modernize Wealth team at 480-346-1283, or email



Business Owners! Don’t Run Out of Money Before the Recession Ends

Business Owners! Don’t Run Out of Money Before the Recession Ends

One of the enduring features of an unexpected downturn is that it can instantly highlight glaring weaknesses for an otherwise successful business. During good times and expansions, it is easy to ignore unnecessary expenses, bloated payroll, and overly optimistic income assumptions. When the economy experiences an unexpected turn for the worse, expenses can be slashed, payroll trimmed, and income assumptions become more realistic.

Business cycles will be with us always, but some businesses will not be part of any recovery. Who will survive and who will falter?

Five Things to Know to Survive

Here are five things as a business owner you need to know to survive:

1. Develop a strong relationship with a good community bank

One of the surest ways to determine if a business is likely to survive is the level of available capital it has at the onset of a recession. Capitalization levels are undeniably critical and, as any business owner can tell you, when you need it the most, capital and credit are often the least available. Banks may be perfectly willing to extend credit to the marginal borrower, but when margins are squeezed and revenues fall, banks are more likely to reign in credit leaving business owners without a lifeline when they need it most. Lending standards will be raised, lines of credit may be reduced or even cut at the worst possible moment. What then?

If you have a good business relationship with your banker, that person can help you understand and plan to meet their lending standards. You need to know how much you can borrow, what collateral you’ll need to pledge, what the best types of loan might be best under various scenarios, and what your credit score will need to be to qualify. Also, the longer you have been a client of the bank, the more credibility you’ll develop with them.

2. Create a stress test for your business plan

As we at Modernize Wealth have stressed, a business plan is a must if you are to navigate through the choppy waters of a recession. A business plan would allow you to create a stress test in order to determine exactly how much of a drop in revenue your business can tolerate before you must reduce costs.

A good plan will also help you determine how much capital you currently have, and how much you might need in the event of a sudden downturn. By knowing this, you can examine your capital sources and create a strategy well in advance of when you need it. You will want to look at bank loans, SBA loans and lines of credit to see what will best fit your circumstances. Knowing what your bank is looking for in its decision-making process and underwriting standards, you can shore up any balance sheet weaknesses before they become fatal.

3. Know how your business will be judged

Do you know how you stack up relative to your competitors? Do you carry too much inventory or accounts receivable? How much liquidity do you have available to meet your obligations? Far too many business owners haven’t a really good idea how to answer these questions, or how to correct any shortcomings. Your business has value in the marketplace, but how is your business going to be valued?

Every business is measured against competitors when determining value. Value is collateral, and as such will be vital in evaluating how much credit you can get. If your financial statements show strength relative to competitors, it can help you at a time where lesser firms struggle.

4. During a recession liquidity is king

Every banking professional or investor knows well the value of a business that best manages their liquidity. Those who make a living evaluating businesses will immediately focus in on the level of certain assets that lose value quickly during a recession, especially accounts receivable, inventory and fixed assets.

Large positions in each of these can seriously damage the business owner’s prospects for obtaining capital. During recessions, payments are delayed, defaults increase, and unsold inventory can pile up as their values plummet. Equipment depreciates and can become obsolete, but during a recession their market value will also suffer a decline. There are strategies to limit the damage to your business, but you’ll need to plan ahead of time.

5. Create a recession fund

Some things never change. A recession can last from six to eighteen months, while expansions can last for ten years. Unfortunately, too many individuals fail to save in the good years, of which there are many more, to get through the lean years.

The same is true for business owners. If a business shows six to nine months of liquid capital available to sustain minimum operations and has access to enough additional credit to survive the remaining period, your chances of success increase exponentially. Assume there will be a recession at some point, often when you least expect it.   

Build your Team

The good news is that you’re not alone. A good team of professionals, including a Wealth Manager, CPA, and a banking professional can help you avoid the pitfalls of being unprepared.

They can help you create and monitor a well-crafted business plan, designed specifically to not only avoid financial distress but take advantage of opportunities created during times of adversity. Having a strong team in place is often why financially well-managed businesses can emerge from a recession stronger and more profitable than ever before. Let us help you become one of them.

If you would like to discuss having Modernize Wealth as part of your team, call us at 480.346.1283 to schedule a discovery session, or use our contact form and we will get a meeting scheduled.

Understanding a Recession

Understanding a Recession

Did you know there are three types of recession? Modernize Wealth Chief Investment Officer John Hebert CPM® CFP® explains the different types of recessions that can occur in an economy, and how they can affect you. John also discusses the current situation caused by the Coronavirus, what kind of recession it is likely to cause, and what the recovery prospects are based on history.

Business Owner Survival Guide – A Plan of Attack

By John M Hebert CPM® CFP®
Business Owner Survival Guide – A Plan of Attack

The business owners that survive this crisis won’t be those sitting on the sidelines gnashing their teeth, they will be the warriors who develop a plan of attack to win the war. Here are the five points of attack you need to implement your plan:

1. Rethink what your business can do
A business is a skilled combination of capital and labor. Take stock of your capital:

  • Facilities
  • Inventory
  • Technological & physical equipment

What can you do with those assets right now? How can you benefit others? What pain can you alleviate in society? Get prepared to engage.

Same with you and your employees. What skills do you/they possess? What do they do well? Dig deep into who they are and how they can be an enormous part of your team’s game plan. Engage, inspire and listen…you aren’t the only one with good ideas. Give everyone ownership!

2. Repurpose your assets to create new products and services
Smart teams get publicity. Why? Because they get creative; alcohol distillers make sanitizers, restaurateurs’ feed medical professions and first responders, and car manufacturers build ventilators. What can you do? I am willing to wager plenty.

3.Improve your communications
Are you communicating with your customers and clients? We at Modernize Wealth are ramping up rapidly with more videos on our website, hosting client progress meetings on Zoom, performing complete electronic on-boarding for new clients, hosting webinars and using more interactive technology to increase our communications. We are writing more articles and publishing on LinkedIn and Facebook. What are you doing?

4. Reexamine your financial assets and liabilities
Take stock of your cash flow. If you haven’t done this, call your CPA or call us here at Modernize Wealth at 480-346-1283. We can help you understand your cash flow position and help to develop a strategy to get you to the other side of this crisis. Talk to your banker and if you don’t have one, we can refer some very good people that will help you.

Also talk to your creditors and suppliers. They can be an enormous help to you and your team. You won’t be the first to need help during these times, and the more forthright business owner is the more respected one. Your honesty with your creditors and suppliers will be appreciated and will often be rewarded.

5. Redeploy and re-engage your team to action
Once you’ve completed the first four steps, redeploy your assets, align your resources, create a financial plan, engage your team and attack! You will make mistakes…so what? Better to be decisive than indecisive. You can always correct mistakes, so long as you stay involved and listen to your employees, customers and strategic partners.

You Can Survive and Thrive

As you march forward, constantly review these five points and update as necessary. We at Modernize Wealth will be here for you. Please reach out to me at 480-346-1283 or email if you have any questions, or just want to discuss further.

About the Author

John Herbert’s financial industry gravitas comes from almost 30 years’ as a Certified Financial Planner and Certified Portfolio Manager. An accomplished educator, John taught Economics at Chapman University and the University of Phoenix for many years. Sensitive to finding a balance between business, family and finance John has always had a passion for helping people build long-term wealth for their families.

A Business Owner’s Guide to Our Brand New World | Part 1

By John M Hebert CPM® CFP®
A Business Owner’s Guide to Our Brand New World | Part 1

I think it’s safe to say that we live in a world of rapid technological, economic and social changes. If you’re a small business owner like me, it sometimes seems as though these changes affect us more than someone who draws a paycheck from a large corporation or a government entity. In our view the recent events concerning COVID-19 have only reinforced this perception. So what should we expect going forward?

Without resorting to a crystal ball, trends that began before a crisis arises will often accelerate dramatically in response to fear, necessity, or both. The list of trends and forecasts are likely to impact the small business owner;  understanding how these trends will affect you will be indispensable, enabling you to not only survive, but thrive.

How future employees are educated will change dramatically

This is personal for me since I spent the better part of a quarter of a century in a classroom teaching working adults. In 1987 (yes Reagan was still President) when I taught my first class, online education didn’t exist; when I retired from the classroom, the University of Phoenix (UOP) was almost entirely online. In the early years, UOP was derided for its foray into online education by the traditional university world. Today every university has an extensive menu of online classes.

With today’s tuition rates out of reach for middle class parents, look for inexpensive online classes to proliferate to the point where college degrees can be earned by anyone, anywhere at any time at an affordable price. Gone are the days of hoping to get accepted at an elite university limited by classroom space and indecipherable standards for acceptance. Work and education will become permanently intertwined. Employers will need workers with new skills and will steer employees as to where they can obtain such skills… increasingly available online.

Remote employment and services will appear in places you never imagined.

We have lived in a world of rapid technological change for some time. What we may not have fully appreciated is how this change will affect every aspect of our daily work lives. Business owners will by necessity need to ask themselves if the amount of real estate used today will be needed in the future. Shared office facilities for everything from testing products to college exams will likely vastly increase. Remote employment, increasingly more common, will likely become the dominant place of work for millions of office workers who may not currently be working from home.

Efficiency has always been the key, and will be more so after the current crisis ends. There will be winners and losers in the process. Those businesses that adapt rapidly to the new models going forward will win in the long run.

Questions or Concerns? Reach out!

The Modernize Wealth team will have many more trends and strategies for business owners, the bedrock of the economy, moving forward…so stay tuned.  Please reach out to me at 480-346-1283 or email if you have any questions, or just want to discuss further.

About the Author

John Herbert’s financial industry gravitas comes from almost 30 years’ as a Certified Financial Planner and Certified Portfolio Manager. An accomplished educator, John taught Economics at Chapman University and the University of Phoenix for many years. Sensitive to finding a balance between business, family and finance John has always had a passion for helping people build long-term wealth for their families.

Business Owner Survival Kit

By John M Hebert CPM® CFP®
Business Owner Survival Kit

You are a member of the club that is the true engine of the economy. Collectively you employ most of the workers and purchase most of the capital equipment larger businesses produce. There is no economy without you. Yet at this moment there is a sense of anxiety not felt since the great recession, and you can’t even keep your doors open to serve any customers or reach out to find new ones. Loyal devoted employees who are like family are frightened and looking to you to provide comfort and security. How are you going to cope with an invisible enemy that has placed you and your family’s future in jeopardy?

Anybody that is there to tell you that things will work out just fine by being patient, is not helping you survive. You need more. As a small business owner myself, I can appreciate your situation like so many others. There are steps that, if you haven’t already taken you need to do so immediately. Procrastination is not an option.

First, reach out to your CPA to understand your current tax position in light of the new rules in place. Tax payments that can be delayed can preserve funds that may be needed to get to the other side of this pandemic. Be certain you are taking advantage of every tax saving opportunity. If you have a bookkeeper go over all of your bills and obligations. Find out what expenses are currently not occurring during the shutdown period. Review what your periodic obligations are, and contact your lenders and those to whom you make periodic payments to, so you can know with certainty what policies they have in place for payment deferral options to a time when the world returns to normal. This includes your landlord, utilities and anybody you can think of.  You must protect your credit scores, but many lenders have been given monetary support from the Fed and well as the most recent stimulus package by Congress. These programs were meant for you!

Once you’ve determined what must be paid, what the current spending levels are at, and what obligations can be deferred, you need to speak with a good financial or wealth advisor to create a plan. Know how you can have your assets work for you, what may be an appropriate amount of debt to carry and what will be needed to help you get through the current economic situation.

Lastly a good wealth advisor will work with good lenders who can go through with you all of the new and existing lending programs available to help you. Borrowing rates are very low right now, and underwriting standards have been relaxed to help you qualify. The SBA has programs for payroll support and for disaster relief including the effects from COVID-19. There also business development program loans, and many programs are available even if you have an existing SBA loan. We can recommend some very good lenders who are eager to help you access the right programs for your business.

You can survive this and you will thrive in the future. Inertia is not an option, and there is help and support for you so please reach out to us, and we will be there for you.

Please reach out to us at 480.346.1282 or if you have questions or just want to discuss further.