It’s well documented that the COVID-19 pandemic caused numerous unkind cuts to small businesses across America, especially those that relied on foot traffic and couldn’t easily segue into online sales.
But for the owners of those businesses, the problems often lie even deeper and are more personal than what’s showing up on the balance sheet. That’s because the financial fate of the business and the financial fate of the business owner are inevitably intertwined, says Marc Scudillo, Managing Officer of EisnerAmper Wealth Management and Corporate Benefits (www.eisneramperwmcb.com).
“You can’t look at a business and ways to increase its value without looking at the hopes, dreams, and needs of the business owners,” says Scudillo, whose specialty is working with private business owners.
“Business planning and personal planning need to be done in conjunction with each other for business owners.”
Unfortunately, it’s easy for business owners to become so focused on the business that they fail to stay alert to potential risks brewing for their personal finances, Scudillo says.
Meanwhile, over the last year the pandemic just exacerbated financial worries small business owners can face at any time, such as:
- Lack of diversification. Most business owners carry a highly concentrated asset, their business, on their balance sheet. “The risk there is that, if something negative happens, like we have seen with the pandemic, the lack of diversification can have a major impact on the business owner’s future finances,” Scudillo says. But there also is an advantage to the situation, he says. “The business owner understands and controls the levers of the asset and can have a big influence on its success, and thus the success of the business owner’s financial future,” Scudillo says. “The challenge business owners have is knowing how and when to create diversification in their balance sheet aside from the business, or what key drivers in the business will help improve the business’s value.”
- Mounting debt. Scudillo says that while some companies were able to thrive through the pandemic, others struggled because their businesses depended on foot traffic that was no longer happening. “Federal loans and assistance programs helped,” Scudillo says, “ but some companies that were struggling prior to the pandemic may have a challenge in rebounding post pandemic with the loans they have accumulated.”
- Retirements that rely on the business. In some cases, the pandemic caused older small business owners to delay retirement. Some business owners plan to fund their retirements, at least in part, by selling the business. If that’s the case, the planning needs to be strategic, Scudillo says. “Small businesses are successful because the business owner is often the chief cook, manager and bottle washer,” he says. “Once they retire and are no longer in the business, future buyers may question what exactly am I buying, and lower the price on the purchase.” Owners may need to create a business less dependent on their personal efforts, or that has processes in place to help yield a better price when the business is sold. In some cases, he says, it’s better to have no plans to sell the business. Instead, the owner can create a team that will keep the business humming while the owner takes more personal time and still maintains ongoing cash flow to support their lifestyle.
“Business owners, like many homeowners, may feel their asset’s value is worth more than the market is willing to pay,” Scudillo says. “That does not mean all is lost. Rather, it’s an opportunity to create a plan that improves the drivers that can lead to a future higher valuation. Also, the sooner a business owner can learn what it is they need to support their lifestyle, the easier it is to develop the diversification strategies they need.”
About Marc Scudillo
Marc Scudillo is the Managing Officer of EisnerAmper Wealth Management and Corporate Benefits LLC (www.eisneramperwmcb.com), which provides financial planning, investment and wealth preservation protection services to both individuals and corporations. Scudillo is a Certified Public Accountant and a Certified Financial Planner™ and Certified Business Exit Consultant®. He holds a Master’s of Business Administration in Finance and Accounting from NYU’s Stern School of Business; a Master of Science in Accounting from NYU’s Stern School of Business; and a Bachelor of Arts Degree in Economics from Colgate University.
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