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Archive for financial management

Personal Finance Ratios

There are seemingly countless ways to measure financial health for both individuals and corporations. In earnings reports, companies use complicated calculations and ratios to inform investors—and the general public—regarding the health of their business. However, the average American can use these principles to assess their own financial health.

Personal savings
Formally known as “average propensity to save,” the personal savings ratio is the amount of income saved for an individual or household. According to the Federal Reserve Bank of St. Louis, the average saving rate was just under 5 percent for Americans in 2016. Historically, the average savings rate in any given year since 1959 has been about 8.5 percent.

Debt-to-income
As its name would indicate, a debt-to-income (DTI) ratio is the proportion of an individual’s monthly debt payments in relation to his or her gross monthly income. Many lenders use DTI as a primary indicator of worthiness of loans because it gauges the individual’s ability to cover loan payments. Though there is no consistent, unilateral recommended ratio, it is popular convention that a DTI over 40 percent will make it more difficult to secure a loan.

Liquidity
This ratio is used to determine how an individual is able to make ends meet in the event of an emergency. Liquidity is calculated by taking all liquid assets (such as non-qualified accounts and cash) divided by fixed monthly expenses (like debt payments). It is commonly suggested that an individual should have 3-6 months’ worth of expenses in liquid assets.

Debt-to-asset
The debt-to-asset ratio is calculated by taking an individual’s total debt divided by their total assets. Though this ratio is primarily used in relation to a company’s finances, it is used to help lenders understand an individual’s borrowing habits, specifically how much of their net worth is tied up in hard assets.

Keep Reaching For Your Financial Goals

Few things are able to motivate us like self-improvement. However, despite initial enthusiasm, our personal goals can seem like impossible challenges after just a few days.

Financial goals are particularly difficult to accomplish. Spending money is inherent in modern life, and financial goals can easily get lost in other money issues. What’s worse, the feedback from financial goals is blunt and immediate. As soon as we get started, our finances begin to define our success with clear positives and negatives. Financial goals also remember our mistakes. A one-time slip-up, like a costly purchase, can disrupt progress towards a goal for months or even years.

The success of a goal often comes down to the strategies and tools used to support them. However, valuable techniques are often abandoned as soon as a little bit of progress is made. Use some of these steps to help make your goal a reality:

Be reasonable – It’s always important to be realistic; In regards to financial goals, it is essential. If you make your goals too extreme, you set yourself up for frustration and disappointment. It’s better to have an attainable goal you can more easily reach than an impossible goal that discourages you and could lead to giving up on the goal entirely. Once you have a little success, you can raise your expectations.

Set solid milestones and celebrate them – Milestones are a great way to track progress and boost your morale, but you need to make them an important part of your life. If you’ve made it halfway to your goal, celebrate in some way and give yourself a taste of what success will feel like. Stay positive; milestones are meant to show you how far you’ve come, not how far you still have to go.

Find some accountability – Telling someone else about your goals and having them check up on your progress can massively boost your discipline. Even if your confidant only asks for occasional updates, being accountable for your actions can provide a lot of encouragement to stick to your plan.

Automate what you can – Constantly trying to make the right choices can wear down your motivation. Automating your target savings or debt payments can help you avoid the potential mistakes and will allow you to save your energy for other challenges.

Break and build habits – It’s often said that it takes 21 days to break a habit or build a new one. While the psychology isn’t exact, it’s clear that our habits are a lot easier to change than we usually imagine. If you can force yourself to stick to a plan for just three weeks, progress should become much easier.

Limit the number of goals – Reaching goals can be difficult, so don’t try to accomplish several of them simultaneously. Only start one or two financial goals at a time and don’t create new ones until your current efforts have become second nature.

Bend so that you don’t break – Interruptions are inevitable. Much like setting a realistic goal, it’s important to have realistic expectations for your progress. If there is an unavoidable problem, adjust your goal accordingly and keep trying. Don’t give up on a goal just because of an unplanned setback.

Reaching goals is a skill that takes practice and experience. In accomplishing one goal, you learn which strategies work best with your personality. Even when you fail, you’ve learned more about what it takes to reach success. The important thing is being willing to try again.

Remember that past performance may not indicate future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, strategy, or product referenced directly or indirectly in this newsletter will be profitable, equal any corresponding historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. You should not assume that any information contained in this newsletter serves as the receipt of personalized investment advice. If a reader has questions regarding the applicability of any specific issue discussed to their individual situation, they are encouraged to consult with a professional adviser.

This article was written by Advicent Solutions, an entity unrelated to Guidestream Financial, Inc.. The information contained in this article is not intended to be tax, investment, or legal advice, and it may not be relied on for the purpose of avoiding any tax penalties. Guidestream Financial, Inc. does not provide tax or legal advice. You are encouraged to consult with your tax advisor or attorney regarding specific tax issues. © 2014-2017 Advicent Solutions. All rights reserved.

The Expert in Anything Was Once A Beginner

-by Caitlin Koppelman-

A few years back, a friend and coworker gave me a print out as a gift to hang in my office. It has this quote on it: “The expert in anything was once a beginner”. When she first gave it to me, I was almost offended by the phrase. I thought to myself, “Oh yeah? Well, maybe that applies to some people, but I’m no beginner. I’m the exception.  I’ve got this!”. I realize now what a lack of maturity that was on my part. You see, my wise friend knew that I’d just taken an important risk in my career. She knew that I’d need the day-by-day encouragement of this little piece of paper to keep me from being afraid to fail. There was only one problem: I hadn’t actually failed at anything …yet. Mostly because I hadn’t really tried.

Those first few weeks, it was easy to slide by – hiding behind other responsibilities in my job, and avoiding those new things I knew would be difficult for me and increase my probability of failure. Eventually it started to bother me: I wasn’t even trying to be the professional I had said I wanted to be. I was hiding. Strangely enough, this fact didn’t seem to bother anyone else. It was clear that I couldn’t wait for others to motivate me beyond the fear of failing. The only solution was to grab some courage, mix it with some integrity, and take a leap!

Risking in private is one thing, but risking with witnesses --- that’s character development. Expertise is gained by repeated practice. Failure is the most common result of practice. It sounds like an unfortunate and bothersome byproduct, but failure builds the character necessary to maintain success. A favorite saying of a colleague of mine is, “it took me 30 years to be an overnight success”.

Risk has rewards. Failure is a sharp tool and though it’s often painful, it’s quite efficient. You can’t avoid it and achieve growth - might as well embrace it and hang on for the ride! Keep others by your side who have also embraced this ability to “fail-forward”. They’ll help you process the failure correctly and remind you to get back up when you feel like giving up. Oh, and it is true, no expert started out that way. 

By the Numbers: Back to School

Summer is winding down, which means school is about to be back in session. Now that both students and parents alike are getting into the scholastic mindset, let’s take a look at a few statistics concerning education in the United States.

Remember that past performance may not indicate future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, strategy, or product referenced directly or indirectly in this newsletter will be profitable, equal any corresponding historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. You should not assume that any information contained in this newsletter serves as the receipt of personalized investment advice. If a reader has questions regarding the applicability of any specific issue discussed to their individual situation, they are encouraged to consult with a professional adviser.

This article was written by Advicent Solutions, an entity unrelated to Guidestream Financial, Inc.. The information contained in this article is not intended to be tax, investment, or legal advice, and it may not be relied on for the purpose of avoiding any tax penalties. Guidestream Financial, Inc. does not provide tax or legal advice. You are encouraged to consult with your tax advisor or attorney regarding specific tax issues. © 2014-2017 Advicent Solutions. All rights reserved.

Retiring Early

It seems as if there has been increasing coverage in the media recently regarding early retirement. The prospect of having an extended retirement is incredibly appealing for many Americans.—However, with pensions becoming increasingly less common in the workplace, workers are required to be more autonomous in how they plan for their retirement; for many, the need to bolster self-directed savings makes the prospect of an early retirement seem more like a pipedream than a possibility. Though everyone has varying financial situations and future expectations, here are a few things to keep in mind when working towards your own early retirement.

Create a current household budget
Before you solidify a plan of action for retiring early, you need to take inventory of your current expenses and general spending habits. If your spending habits inhibit you from saving a sizable portion of your earnings in pre-retirement, it will be incredibly difficult to retire early. If possible, try to find ways to cut discretionary expenses and evaluate your saving habits. By developing a budget, you will put yourself in an advantageous situation. In fact, maintaining a household budget will put you in the minority of American adults; according to a Gallup poll, only one in three Americans maintain a detailed household budget.

Forecast future needs
In addition to considering how inflation will affect your budget in the future, it will be wise to also consider that certain costs, such as healthcare, will increase significantly in retirement. When calculating your needs in retirement, be sure to include rising costs and unforeseen expenses. Failure to account for increasing needs could potentially leave you short of cash at a time when you may not be physically fit enough to work the hours required to cover the shortfalls.

Stay disciplined
Cutting out your favorite guilty pleasures in order to save for the future can be difficult, especially when those around you might be going on lavish vacations and buying luxury cars. By saving your money in the meantime and remaining focused on your goal, you will significantly improve the likelihood of being able to retire early.

Consider investing
Though everyone has a different financial situation and tolerance for risk with their money, investing in the stock market has historically produced higher returns over a long timeline than keeping money in a bank. Given low interest rates on most bank accounts, a savings account may not grow your money significantly enough, especially if your retirement plan is predicated on seeing significant growth on your savings. Though investing in the stock market inherently carries risk of potential losses, investing long-term has historically proven beneficial to investors.

Work with your financial professional
In addition to personally taking measures to ensure an early retirement, remember that your trusted financial professional is dedicated to working with you to help achieve your goal. Reach out to your Guidestream Financial, Inc. professional to help you work towards achieving your dream.

Remember that past performance may not indicate future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, strategy, or product referenced directly or indirectly in this newsletter will be profitable, equal any corresponding historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. You should not assume that any information contained in this newsletter serves as the receipt of personalized investment advice. If a reader has questions regarding the applicability of any specific issue discussed to their individual situation, they are encouraged to consult with a professional adviser.

This article was written by Advicent Solutions, an entity unrelated to Guidestream Financial, Inc.. The information contained in this article is not intended to be tax, investment, or legal advice, and it may not be relied on for the purpose of avoiding any tax penalties. Guidestream Financial, Inc. does not provide tax or legal advice. You are encouraged to consult with your tax advisor or attorney regarding specific tax issues. © 2014-2017 Advicent Solutions. All rights reserved.

  • June 15, 2017
  • By admin
  • Comments Off on Three Financial Myths and the Straightforward Truth
  • in financial management

Three Financial Myths and the Straightforward Truth

-by Mark Olson-

Mark Olson, MBA, CIMA®
President/COO
GuideStream Financial

A myth is a popular belief that is false or unsupported.  I have observed the following three financial myths and appreciate this opportunity to highlight and counter each one.

Myth #1:   I don’t need a financial plan

The straightforward truth is everyone needs a financial plan.  A financial plan is one of the most powerful yet neglected tools available for managing your resources.

Effective planning defines what matters most.  It answers important questions and provides guidance for decision making.  Appropriate investment allocations naturally roll out of a well-crafted plan.  Byproducts of a thoughtful plan include increased understanding, harmony and a sense of peace.  Who can’t use more of those in their life?

Unfortunately, we all have behavioral tendencies that often keep us from doing what is best.  While most conscientious individuals sincerely intend to focus on the big picture and develop some type of plan in the future, the inertia of the status quo normally prevails.

To increase the probability of acting on your good intentions, get some help.  There is wisdom in listening to and taking good advice.   Identify and contact a qualified, experienced, unconflicted financial planner to begin a conversation and develop a plan.

 

Myth #2:   A competent investment advisor should have the insight to consistently predict the market

The straightforward truth is the most knowledgeable and sophisticated investment advisors humbly acknowledge market timing is not successful over the long term.  They allocate portfolio holdings across the broad range of asset classes.  Those asset classes include non-US developed equities, emerging market equities, US equities, real estate, fixed income and often hedge strategies plus other alternative investments.  Each of these asset classes provide different sources of return which all help capture returns and mitigate risk.

Despite the steady flow of inputs from the media regarding attention-grabbing, timing related investment tactics, disciplined asset allocation remains the wisest approach over the long term.  Thoughtful asset allocation is like the quote about democracy attributed to Winston Churchill. He stated emphatically, “Democracy is the worst form of government except for all the others.”  Asset allocation, like democracy, is far from perfect, but over the long term provides an extraordinary way to generate returns and manage risk that surpasses all the other schemes.

 

Myth #3:   Giving decreases wealth

The straightforward truth is giving increases wealth because true wealth is linked with well-being. 

Giving is perhaps the most powerful antidote for the toxic elements of self-indulgence and self-promotion permeating our culture.   Giving is an investment that benefits the giver as much or more than the receiver.  An added dividend for true givers is a dawning awareness of contentment that develops along the way. 

Unfortunately, fear and anxiety often restrict openness to giving opportunities and options.  The long-term solution for increasing the level of giving is to develop a financial plan.  The plan will help clarify values, priorities and giving potential.

 

Conclusion:

To better manage your resources, be a planner, invest in well allocated portfolios that flow out of your plan, and be a giver.  If you embrace those initiatives, you will never regret it and most likely will be surprised by joy along the way.

 

How Americans are Saving for Retirement

Recent estimates indicate that the Social Security Trust Fund will run out of its surplus in 2034. Once this occurs, program payouts are expected to be worth only about 77 percent of current benefits. Unfortunately, one-third of retirees rely on social security payments for at least 90 percent of their retirement income. With social security payouts likely headed for significant reduction, contributing to self-directed retirement accounts is more crucial than ever. Just how are Americans doing when it comes to saving for their future?

How America Saves
According to a TransAmerica Center survey, the typical American expects to retire at 67 but actually ends up retiring five years earlier than anticipated.
A shortened career means less time for earning and saving, as well as more time spent withdrawing from accounts. This further emphasizes how saving for retirement is even more crucial than some Americans might assume.

 

Remember that past performance may not indicate future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, strategy, or product referenced directly or indirectly in this newsletter will be profitable, equal any corresponding historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. You should not assume that any information contained in this newsletter serves as the receipt of personalized investment advice. If a reader has questions regarding the applicability of any specific issue discussed to their individual situation, they are encouraged to consult with a professional adviser.

This article was written by Advicent Solutions, an entity unrelated to Guidestream Financial, Inc.. The information contained in this article is not intended to be tax, investment, or legal advice, and it may not be relied on for the purpose of avoiding any tax penalties. Guidestream Financial, Inc. does not provide tax or legal advice. You are encouraged to consult with your tax advisor or attorney regarding specific tax issues. © 2014-2017 Advicent Solutions. All rights reserved.

Financial Literacy Quiz

Here’s a chance to put your financial knowledge to the test. Below are eight general (but not necessarily easy) questions that could be essential to your financial planning. The answers are provided below. While you can take pride in the questions you answer correctly, it is more important to look at the ones you may have missed. Of these, is the question significant to your finances or have you been structuring your finances using an incorrect assumption? Regardless of how many questions you get right or wrong, they can help add clarity to your financial decisions.

1.    How much can a person increase his or her Social Security check by waiting until age 70 to begin taking benefits, rather than taking them at “full retirement” at age 66? 
a.    10 percent
b.    16 percent
c.    24 percent
d.    32 percent

2.  A husband and wife decide to begin saving for retirement at age 25. The wife starts funding her retirement account right away with $400 a month. She continues saving at this rate for 10 years. When she stops, her husband begins funding his retirement account at the same rate, but contributes for 30 years, at which point they retire. Both accounts grow tax free at a rate of 6 percent a year. We know the wife only saved one-third of what her husband saved, but which statement best describes the final value of the account?
a.    The wife ended up with significantly more money
b.    The wife ended up with slightly more money
c.    The husband ended up with slightly more money
d.    The husband ended up with significantly more money

3.    True or False: 
Annuities are a poor investment because they return less money than if the principal cost was invested directly.

4.    For the 2017 tax year, what is the maximum amount an estate is exempt from taxation?
a.    $1.49 million
b.    $2.49 million
c.    $5.49 million
d.    No maximum on the exemption

5.    Using the S&P 500 market index, what has been the average annual growth rate of large-cap stocks from 2007-2016?
a.    2 percent
b.    5 percent
c.    8 percent
d.    12 percent

6.    What is the primary difference between mutual funds and exchange-traded funds (ETFs)?
a.    ETFs are not actively managed by anyone, and therefore have lower management fees than most mutual funds.
b.    Unlike mutual funds, ETFs are not regulated by the Securities Exchange Commission, allowing ETFs to use much riskier investment strategies.
c.    Mutual funds are not allowed to invest in foreign bonds; ETFs can make use of any bonds available.
d.    The average ETF comprises far more unique investment assets than mutual funds, which typically make use of less than 10 different assets. 

7.    Say you start your retirement with a target income of $50,000 a year. Assuming inflation continues at a modest 2 percent, how much money will you need by the 25th year of your retirement to maintain the same spending power as $50,000?
a.    $70,000
b.    $80,000
c.    $90,000
d.    $100,000

8.    True or False: 
Bonds are often considered safer assets than stocks; a safe portfolio is one that consists mostly of bonds.

Answers and Explanations 

1.    d. 32 percent
Your monthly social security benefit increases by 8 percent of its full retirement value for each year you defer, reaching its maximum at age 70. 
This increase can make delaying your social security benefit extremely advantageous if you end up having a long retirement.

2.    c. The husband ended up with slightly more money
This one was a bit of a trick question and would have been difficult to answer unless you got a calculator and did the math. In this scenario, the husband ended up with about 4 percent more than his wife did, but contributed 300 percent of what she did and only passed her value in the last four years of saving. The husband ended up with more in his account, but the extra $96,000 the wife got to use elsewhere makes her the better planner.

3.    False
Like most things with retirement and investing, the usefulness of a strategy or investment comes down to the individual. Annuities can be extremely helpful for certain people. Only a comprehensive retirement plan can determine whether an annuity is right for a person.

4.    c. $5.49 million
In 2011, the government allowed individuals to pass up to $5 million through their estate (married couples could pass $10 million). Since this value is adjusted for inflation, it increases each year; in 2017, this exclusion is now $5.49 million for an individual and $10.98 million for married couples. Any amount exceeding this exemption is taxed at 40 percent.

5.    b. 5 percent
Though it has improved significantly since the Recession, the S&P 500 stock index has only climbed an average of about 5 percent per year for the past 10 years. It’s important to note that historical growth rates are no indication or guarantee of future changes in the market.

6.    a. ETFs are not actively managed by anyone, and therefore have lower management fees  than active mutual funds. 
The lower fees associated with inactive management has made ETFs very popular in recent years; however, though mutual funds typically generate higher fees, their active management often allows them to survive market upheaval better than ETFs.

7.    b. $80,000 (technically, $82,030)
After 25 years of 2 percent inflation, each dollar has lost about 40 percent of its buying power. It is absolutely vital to consider the significance of inflation when calculating your retirement plan.

8.    False
“Safety” in investing is all relative to a person’s situation. Any portfolio that is overly committed to a single asset or type of asset is carrying extra risk. Additionally, safer assets produce lower returns. It is possible for a “safe” asset to be dangerous because it does not produce high enough returns for you to meet your goals.

Remember that past performance may not indicate future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, strategy, or product referenced directly or indirectly in this newsletter will be profitable, equal any corresponding historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. You should not assume that any information contained in this newsletter serves as the receipt of personalized investment advice. If a reader has questions regarding the applicability of any specific issue discussed to their individual situation, they are encouraged to consult with a professional adviser.

This article was written by Advicent Solutions, an entity unrelated to Guidestream Financial, Inc.. The information contained in this article is not intended to be tax, investment, or legal advice, and it may not be relied on for the purpose of avoiding any tax penalties. Guidestream Financial, Inc. does not provide tax or legal advice. You are encouraged to consult with your tax advisor or attorney regarding specific tax issues. © 2014-2017 Advicent Solutions. All rights reserved.

Succession Planning

by Kirk Hoffman
April 2017

A succession plan for a business is one of the most important safeguards that can be used to ensure the company’s future success.  Approximately one-third of family businesses that transfer to the next generation result in success, and only 12 percent make it to the third generation.  Choosing tomorrow’s leaders and formulating a plan for retirement, death, disability, or even divorce are tasks that should be done early and reviewed often.  The transfer of power and wealth can provide a smooth transition or can be the demise of a company, depending on how future leaders are chosen and groomed, and how tax and estate planning implications are handled.

There are various business succession options available to the owners of privately held businesses. These include:

o   Transfer of ownership to the next generation

o   Employee stock ownership plan (ESOP)

o   Public offering

o   Recapitalization of the business

o   Sale of the business to a third party

o   Liquidation of the business

Transfer Ownership to Next Generation

When choosing and grooming successors for a business, business owners must consider the person’s business strength and savvy, and the psychological and emotional impacts of any decision on employees and family members.

Children who are active in the family business present both unique opportunities and potential pitfalls. There is the opportunity to take advantage of gifting and valuation discounts when transferring the business to family members.  A Family Limited Partnership often works well in these circumstances. However, there is always the risk of family disagreements and the challenge of balancing the estate with family members who are not active in the business.

Whether the successors are family or not, it’s important that the succession process begins early.  The first step is to recruit talented employees from the beginning and help them develop their leadership skills within the company.  They should also get comfortable with taking over long before they actually do so, to ensure a smoother transition.  It may also be helpful to get clients used to the new leadership before they take over.  Adequately preparing the successors is one of the best things that can be done to maintain a company’s success in the next generation.

ESOP 

If the choice is to transfer the business to the employees, an Employee Stock Ownership Plan (ESOP) may be the solution.  An ESOP is a qualified plan designed to benefit all employees and must be non-discriminatory.  Unlike other qualified plans, an ESOP can borrow money to purchase investments in the stock of the sponsoring corporation.  An ESOP is an excellent method for business owners to plan for the transfer of ownership.  In addition, an ESOP provides tax advantages to the selling shareholders that assist in maximizing the value of the business.

With an ESOP, the business owners sell their shares to an ESOP trust.  The trust in turn makes annual contributions to the accounts of the employees.  One key issue that must be addressed with an ESOP is the concept of repurchased liability.  The sponsoring corporation must create a market for the employees to redeem their vested shares upon certain events (e.g. death, retirement).  It’s important to give careful attention to this issue.

Public Offering

An alternative to the ESOP is to go public.  Using this method, corporate shares are offered to the public and traded on the stock market.  Going public is usually an expensive option that requires a sufficient revenue base and a strong business plan.  It is not optimal as an exit strategy if the business owner is near retirement; rather, this strategy is best employed early in the succession planning process while the owner is still very active in the business.  This option is most useful to provide growth capital for the business; however, it can provide liquidity to an owner in the long run.

Recapitalization

If the business owner would like to begin to transfer value while retaining control of the company, recapitalization may be the answer.  Using this method, the business issues two classes of stock: voting preferred and non-voting common stock.  The non-voting stock is transferred either through sale or gift to the successors.  The business retains the voting preferred stock until the owner are ready to transfer control.  This is more commonly appropriate when transferring a business from parents to the next generation and may be most useful to provide growth for the business.

Sale

The business owner may choose to sell the business to someone who is not currently involved in the company—a competitor, an existing customer or supplier, for example.  This can be done as a lump sum sale or in the form of an installment sale that spreads the payments and tax implications over a number of years. The sale of the business may be structured as an asset sale, a sale of stock or a combination of both.  The business owner is motivated to sell the stock in the company to take full advantage of the lower capital gains tax rates (a sale of assets usually subjects a portion of the gain to ordinary tax rates).  However, the market and other factors may dictate the nature of the sale. 

Liquidation

If there is no market for the business as an ongoing entity and other options are not available, the business owner may choose to close the business and liquidate its assets.

Buy-sell agreements

What will happen to succession plans if a business owner or a partner dies prematurely, becomes permanently disabled or gets divorced?  Most closely held businesses need to have a buy-sell agreement in place when other partners, principals or shareholders are involved.  Most commonly, this agreement states what occurs if a partner/shareholder should die, but it should also include provisions for retirement or other departure, disability and for the divorce of a partner.

A properly structured buy-sell agreement stipulates in a binding contract what occurs in each of the events outlined below.

Death: There are two general structures to the buy-sell agreement in the event of death–a cross purchase or an entity purchase.  In a cross purchase plan, each of the partners owns life insurance on the lives of the other partners.  In the event of the death of a partner, these life insurance proceeds are used to purchase the business equity from the estate of the deceased partner.  This type of plan works well in a company with few partners.  The entity purchase plan is similar, except the company owns the life insurance on each of the partners, and the company purchases the deceased partner’s shares.  This is easier to administer when the business has many partners.

Disability: A disability buy-out provision specifies the method and timing for the buy-out of a disabled partner.  This can be done with an installment sale (providing the company can afford the payments) or more likely with a disability buy-out insurance policy.  This policy provides a lump-sum benefit to purchase the business shares from the disabled partner.

Divorce: A divorce decree or the operation of provincial law can stipulate that all assets are divided between the spouses, including business interests.  Unless the couple had a pre- or post-nuptial agreement protecting the partner’s business assets, the business may end up with a new and potentially unwanted partner.  To prevent this from happening, the buy-sell agreement should include provisions in the event of a divorce.

Creating a business succession plan may be one of the most difficult management challenges.  Juggling the selection and preparation of successors with tax and estate concerns makes succession planning a complicated endeavor, as evidenced by the failure rate of second and third generation businesses.  The best way to successfully send a company into the future is to start forming a plan now.  Each type of plan has its own strengths and tax implications, so it is important to discuss the decision with a professional well versed in business succession.


The information contained in this article should not be considered legal or tax advice.

 

Generosity

by Scott Blakemore

Over the years, Jackson has been the recipient of some very generous people and institutions –   our Carnegie Library is just one example.  When you think about ‘Generosity’, what comes to mind?  Does generosity pay dividends?

Big business understands that giving back matters.  In fact, the three finalists in the ‘Best Bank’ category all share how much their employees volunteer to Michigan nonprofits.   Being generous with time does make a difference. 

Generosity can take many forms – from donating time or talents to serve others, to offering financial assistance.  But what can we do, as an individual? 

Here are some ideas to consider that might help us be more generous on an individual level:

  • Mentor a co-worker or friend on advancing their career.
  • Help a neighbor who needs some home repair.
  • Offer financial assistance, groceries or gas cards to someone you know in need.
  • Teach a class in your area of expertise to help educate others.
  • Buy a cup of coffee for a friend and ask them how they are doing, and listen.
  • Be hands and feet for an organization that needs helpers to serve others.
  • Financially back a young entrepreneur to give them a chance to create something new.

There are a host of ways we can live generously.  Unfortunately, what often hinders us from being generous is that when we really stop and look at the needs around us, it is overwhelming.  We live in a needy community and we can’t do it all.  However, I challenge you to do for one what you wish you could do for many.  We all have abilities or resources we can invest in someone else.

Each of us, at our core, seeks to have a life of significance.  We want to live a life that makes a difference.  In many line of work, we often focus on the dollars and cents of our net worth, and while that is important, it is only part of the equation.  In the end, it is my conviction your worth is measured primarily by the impact your life has on the lives of others.  These are the dividends of a generous life.

By giving of ourselves, we can model generosity to those around us, build a Better Jackson and continue in the footsteps of the generous people who came before us.  

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Please use the following information to contact us. For security reasons, please do NOT send sensitive information such as account numbers, social security numbers, balances etc. through the website. 

Name: GuideStream Financial, Inc.
Phone: 800-325-8975
Fax: 517-750-2752
Address: 8050 Spring Arbor Rd., PO Box 580, Spring Arbor, Michigan 49283