Retire… Are you done yet?

You've all seen ads for retirement. Ads for planning and preparing to retire, investing, rolling over your 401k, making sure you’ve saved enough money, and warnings that retiring is going to cost you more than you think. There is only one problem with these narratives. They make the assumption that retirement means no longer contributing to the world while receiving a paycheck. The Concept of Retirement Before the 1880’s, there was no institutionalized concept of retirement. Then in 1889, German Chancellor Otto Von Bismarck invented retirement when he announced that he would pay a government pension to all non working Germans after they reached 70 years of age. Bismarck wasn’t trying to spread goodwill, but rather stave off the expansion of socialism in Germany. The retirement age was later lowered to 65, but no one really benefited because life expectancy during that time was about 46 years. Retirement was an unknown…

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“My Business IS my retirement.” Really?

I usually begin my talks at NAMM or sharing groups with three questions: 1-How many of you are relying, on the proceeds of your business to help fund, at least in part, your retirement? Half the hands go up. I jokingly say, for those that have not raised their hands, you either have a rich spouse, are expecting an inheritance, or  plan on selling real estate, because we both know you can't live on social security alone. 2- How many of you know how much monthly cash flow you'll need from your business or other sources to support your personal retirement? Fewer hands go up. 3-And how many of you know how you're going to create the cash flow in a tax effective manner, and know what you will do in your personal life after you exit?  Here hardly anyone raises their hand, but I do usually hear a few laughs. The primary…

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Excuse Me. Will You Be My Successor?

I was once teaching a financial education class to retirees, about the importance of assigning someone to be your  power of attorney. For those that are unfamiliar with the term, it is a legal document which appoints someone you trust, to make legal and financial decisions on your behalf when you are unable to. A gentleman in his 60's raised is hand and said. I'm not married. I have no family. I have no friends that I trust. Will you be my power of attorney? At first I thought he was joking. Here I am, a total stranger, talking to this gentlemen in a classroom filled with people, and he asks this question. It was no joke. He recognized the importance of a POA, but had not developed the necessary human relationship with any one that he trusted, so he asked a total stranger. Yet there is a strange similarity to this conversation and…

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Owners & Employees Are Singing The Same Song At Amro Music.

Talking about Nepotism in the work place can very quickly lead to a heated discussion. Is it good? Is it bad? While it's clearly important to avoid the "lazy nephew" phenomenon- appointing an incompetent or lazy family member to an important position, there are  obvious benefits to employing family members. If it's your family company you might say, "while I may not currently be the best performer, there's no one that's going to work harder than me, and no one that will care about the company more than me." This narrative has been working for many of the top multi- generational family owned retailers in the US. When speaking with NAMM members, I only heard great things about Amro Music and the incredible work Pat and Chip Averwater, (Chip is recently retired from Amro) are doing in preparing their sons Nick & CJ for more responsibility. You probably know that Chip has…

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Till Death Do Us Part: Why delaying the transfer of your business may be a smart decision.

You read this title correctly. With the right planning, delaying the transfer of ownership of your business could make sense. However this doesn't mean you delay your succession planning. Consider this scenario: You are the working owner of a music store and you own the building Your child or valued employee is the manager You have a simple "I love you” will (following your death all the stock of the company goes to your spouse) You have been depreciating the value of your building for 15 years, and as a consequence the IRS is demanding a "recapture" tax the moment you accept a note from your child You are concerned with the double taxation which occurs when you sell your shares to your child or key employee, and then are paid back with after tax dollars Here’s an idea you may want to consider; it's called a one-way buy-sell arrangement. Unlike a typical…

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How An Executive Bonus Plan Works.

Here's how an Executive Bonus Plan provides retirement income, death benefit protection, as well as additional living benefits, which could include a down payment to purchase your stock.  Here's how it works. Employer offers an incentive bonus benefit to key employees and receives a current tax deduction.2 Employer submits the bonus contribution to a life insurance policy. 1 Key Employee owns the life insurance policy and benefits from the cash value and survivor benefits, but also pays income tax on any bonus contributions made to the plan. What's in it for the employer? Increases moral Receive tax deduction Easy to communicate Keep in mind this strategy does reduce company cash flow by the bonuses paid. What's in it for the employees? Save more- More can be saved above the limits of a qualified plan such as a 401(k) Receive multiple benefits- In addition to retirement income, it provides access to funds…

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Retaining Your Key Manager(s) With Golden Handcuffs.

Here's my story. Back in 2002, I ran an internship program at UBS Wealth Management for my team. The resumes came in. I reviewed them. I called the one's that I believed would be the best fit. You know how it ended. I trained them, and shortly after they left. From the intern's' perspective, they received great experience, and added an entry into their resume. From my perspective, I grew tired of running a school. Music retailers may not be in the internship business, but they must figure out a way to retain their key managers. Let's face it. It's expensive to identify and train a new manager. According to Center for American Progress, the typical cost of losing a manager earning up to $75,000 is  20% of salary or $15,000. I was speaking with a music retailer owner who told me that after 20 years, she lost her key manager,…

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Will The Right Funding Be There When Needed?

Many music retailers tell me they have a buy-sell agreement. That is they have a good idea of who they want to eventually sell their business to. Fewer have the agreement in writing, and even fewer have it correctly funded. Having a written buy-sell agreement in place is at the heart of a SUCCESSFUL business transition plan. However, if that agreement is NOT funded, business owners can be left in a vulnerable position in the event of unplanned events such as : Divorce, Death, Disability, Disagreement, Departure. Typical funding sources include: Cash- Borrow-Savings-Installment Sale-and Insurance. Below, you'll find a quick summary. Let me know if you have any questions. Source: The Principal Financial Group    

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Creating A Market For Your Music Store

If you are fortunate enough to have a portfolio of readily marketable investments i.e., 401(k), IRA,  individual or joint accounts consisting of stocks, bonds, and cash, you you have an easy way to determine its daily value by reviewing monthly statements. If you need liquidity, you have cash in your hands. In other words there is a market for your investments. Without the proper planning, your music retail store has no market, and the value is uncertain. A properly funded buy-sell agreement provides departing owners with a market and a price for an asset that might otherwise be hard to sell. The agreement insures that each shareholder can sell his or her stock.  Generally speaking there are three types of Buy-Sell agreements. Cross Purchase- A cross purchase agreement is between the owners (shareholders). For example, upon certain triggering events such as death or disability, the agreement spells out the details how other owners…

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Tip 2: How To Ask Your Succession Team Better Questions.

Business owners often under great duress have to make fast, irreversible decisions. It’s best to heed the advice of former heavyweight champion Mike Tyson- Everyone has a plan until they get punched in the face.” Being able to ask good questions at the right time is as powerful as a winning right hook. It requires confidence because often there is no time to check with your “plan.”   What’s the solution? Learn and speak the language of money. Whatever type of financial decision you are struggling with, whether it is saving for retirement, growing your business, stitching together the many pieces of your succession plan, or creating a retention agreement for your key manager(s), there's a simple and effective way to  help you organize your finances in the same way the diatonic scale system helps organize  billions of potential sound combinations into music. The process creates a capsule for each of these financial notes so you ask…

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