Personal Forecasting: How Wholesale Owners Need to Forecast

Time is getting shorter every year. When a client reviews their financial and business plans with me, we discuss not only what will happen next year but what we expect to happen five or 10 years down the road. The steps you take to further your financial and business goals in 2012 should be part of your game plan to get you to your five- or 10-year goals. As the economy has worsened, I have noticed that clients tend to forget these long-term goals. Focusing on the here and now is a natural human reaction to uncertain times; unfortunately, this reaction can hurt you if you lose sight of your long-term goals.

How a wholesale business owner forecasts their personal finances depends entirely on their business. The strength and cash flow of your business will govern how you will take income from that business. There are also many nonfinancial issues that have a direct financial impact on a business owner. With that in mind, I have set out below a series of issues to consider in making your plans for 2012.

Goal Planning: As a business owner, when you look ahead to plan your personal finances, you will need to look beyond 2012; the first question to ask yourself each year is “where am I going?” Are your five- and 10-year goals the same as they were last year? When was the last time you even considered your long-term goals? Your primary long-term goal should be how you will exit your business; this goal will determine how you will build your business. Primary exits are the sale of the business, liquidation of the business, devolving the business to children or partners or maintaining the business purely as an income platform. Each of these goals requires different strategies. Make sure you understand them, and that your team of trusted advisers understands them. A year-end meeting with your attorney, accountant, insurance broker and any other adviser you use is a good way to keep everyone focused on the end goal.

The Corporate Form: Your company is where your equity lies — for many, their equity in their company is what they intend to use for retirement. You mine the equity from your company by selling it or its assets. Make sure that the vessel that holds your equity is sound; the corporate form does not take much time to maintain, but failure to do so can be catastrophic. Make sure that you have complied with the corporate form requirements of your business entity and that you plan to meet those requirements in 2012. Subchapter S corporations are particularly good vehicles for selling your equity but are also particularly susceptible to inadvertent destruction. Failure to maintain the corporate form can result in hidden tax liabilities (such as becoming subject to the double taxation of a Subchapter C corporation), or the failure of the corporate form to protect you personally against lawsuits. This failure can cost you more than any ill-advised investment strategy for 2012; do not brush it off as a ‘mere technicality.’ The problem with corporate form errors is that you cannot easily fix them in subsequent years; their cost grows exponentially. If you intend to sell your business, expect potential buyers to scrutinize your corporate formalities as part of their due diligence. No buyer will be interested in a corporation that risks tax or liability problems because you failed to observe the formalities; this will lead to a more difficult time finding a buyer, and a lower sale price.

Financing: It is no secret that financing is hard to obtain these days. If you need financing and are eligible for a Small Business Administration loan, you may want to move as quickly as possible. The SBA budget is unsure right now but likely to see a cut next year.