I started this business from nothing,
and it’s provided a good living for me and my family. Now I’m ready to retire and hand the reins over to someone else, but I don’t know where to start. Who will take over my business? Should I look to merge with a competitor? Sell to a vendor? Keep the business in the family? Hand down to the employees? Do I need a buy-sell agreement? How do I structure an exit plan for the sale?

Investing for Business owners

Set up a safety net
While the ideal situation is that your business provides you and your family with a steady source of income, this is not always the case. However, by investing a fixed amount of cash (at least three to six months’ worth, although stashing away a year’s worth can give you added security) in a liquid account such as a money market fund, you establish a cushion that can safeguard your family or your business should your other investments or your business perform poorly.

Look beyond your own business
While diversification is the cardinal rule of investment in today’s market, many small business owners still ignore it and choose to invest almost all of their assets in their own business. After all, why wouldn’t you want to invest in a business that you are familiar with and where you have a large amount of control over how well the business performs? The logic behind small business owners’ decision to do this is certainly understandable; however, this kind of limited investment strategy can be extremely dangerous, as it opens you up to high concentration of risk and can cause inflexibility and illiquidity within your portfolio. In addition, small businesses are more likely to feel the pressure of natural economic patterns, such as increased competition or price inflation, simply because of their size. If all of your assets are tied to an investment with this kind of fluctuation, you could face severe consequences down the line.

Diversify by industry and by location
When small business owners do invest in companies outside of their own, they often turn to businesses or industries that are related to theirs, as they feel their industry knowledge allows them to more accurately evaluate the future performance of these companies. Unfortunately, this can create even more risk within your portfolio, as similar companies usually have similar performance. If the market were to shift out of favor with your particular industry sector, it could be disastrous for your portfolio.

Investment diversification can go beyond industry—you should also avoid concentrating your portfolio on any one geographical region. Many small business owners like to invest all or most of their assets in local businesses, but this can have the same risk repercussions as investing all in one industry. By investing in securities outside of your region or even your country, you can avoid letting the economic troubles of one area ruin your entire portfolio.

Focus on preservation
Instead of limiting your portfolio to just your business, try to think of your business as simply one part of your overall investment portfolio. General best practice for small business investors is to base the structure of their portfolio on preservation rather than large-scale growth. By focusing on a more conservative investment strategy, you can have a better chance of being able to rely on your portfolio during an economic downturn when your business may not be doing as well. If you focus mainly on growth and a riskier investment strategy, both your portfolio and business could collapse if there is a dip in the market.

Round out your portfolio
Integrating your business interest with other investments is a good way to lessen your overall risk: focusing on preservation means protecting your capital in recessionary markets while still allowing for growth in expansionary markets. For example, a small business owner could choose investments in government or high-quality municipal bonds and small-cap equities or high-yield bonds to complement his business interest. The government and municipal bonds can help him should the market hit a recession, as other investors will want to buy bonds at this time to safeguard their portfolios, causing bond prices to rise. On the other hand, if the market were to hit an upswing, small-cap equities and high-yield bonds, which have higher volatility, have the potential for higher returns and could allow him to benefit from this market surge. While there’s no one method of asset allocation that is guaranteed to produce the best returns, the most important thing to remember is to invest in a variety of assets and a variety of markets to avoid large-scale loss.


There is no magical formula for the “right mix” of investments for small business owners. You have to consider your time horizon, risk tolerance and current business status in order to find the best investment strategy for you. It can also be helpful to conduct a historical performance review of your business’s performance through various market cycles. Your advisor at Ferris Capital can help you do this in order to see which investment vehicles will work best for you. While your business should provide you with all the income you need, engaging in practical and efficient investing strategies can help you breathe easier if that isn’t the case.

If you would like more information on how to invest effectively as a small business owner, please contact Ferris Capital, LLC.

Business Financial Checkups

Even well-established businesses, with decades of reliable revenue streams find themselves “off course” from time to time. Our team of professionals have experience in advising business owners in numerous areas. Ferris Capital has compiled a comprehensive list of key questions and health checks for all business owners to consider.

Personal assets and business risks

What am I liable for?
Before protecting yourself against business risk, you have to determine your personal liability risk. While your business will always be subject to debt, that doesn’t always mean your personal assets can be used to pay that debt. There are two types of claims that can be made against you: internal claims and external claims. Internal claims are limited to pursuing your business’s assets, while external claims can extend to your personal assets as well. Your liability depends largely on the type of business entity you own, as well as the nature of your business and your assets.

Certain types of entities, industries and assets are generally more liable than others. Ferris Capital Can help clients comb through and identify their specific risks, and avoidance tactics.

Asset protection plans

One way to protect yourself from business risk is to set up an asset protection plan with your attorney. Asset protection plans provide a way to deter claims and help prevent the seizure of your personal assets through the setup of various legal documents and entities. Typically, these plans combine corporations or partnerships as a way to keep risk inside the business itself as well as trusts to shelter personal assets. It’s a good idea to start asset protection plans sooner rather than later, as the longer they are in place, the stronger they will be.

Asset protection plans often use irrevocable trusts to protect personal assets. Unlike revocable trusts, irrevocable trusts are trusts that you don’t control and cannot revoke, so the money within the trust likely will not be considered yours from a legal standpoint. This makes the money unreachable by creditors, providing you with some form of asset protection.

Asset protection trusts are a special type of irrevocable trust that is only legal in certain states. They allow for the distribution of money from a trust, even though the trust would be considered outside the grantor’s estate. Because they are not legal nationwide, many of these types of trusts are found in offshore accounts. Asset protection trusts are complex and expensive, and should not be attempted without the help of a legal professional. There are also many risks involved, and if you’re found to have created an asset protection trust fraudulently, creditors may still have access to the funds within it.

Above all, asset protection plans should be considered sooner rather than later. If you try to transfer funds outside of your estate after a claim or liability arises, a judge may be able to void the transfer and seize your assets anyway. It’s important to remember that asset protection plans are just that—plans. Although they attempt to hide and shelter your wealth, there’s always the chance that creditors will “find” this wealth anyway. Asset protection plans should always be supplemented with insurance.

Additional ways to minimize liability
Beyond asset protection plans and insurance, there are many things you can do to minimize your business risk, including the following:

Keep business and personal finances completely separate.
Show a clean business record.
Avoid personal guarantees.
Be honest when applying for credit.
Make sure contracts include liability protection.
Be wary of business credit cards.

Unique Risks of Family-owned businesses

Family-owned companies comprise approximately 90 percent of businesses in the United States. With increased employee loyalty and deep-rooted pride in their products and services, family companies are the backbone of our economy.

While any business’ relationships can be complex, adding a family dynamic to the mix creates a labyrinth of unique issues and risks to navigate. Many family business owners believe they are at low risk for claims; however, the opposite is true. Director and officer claims, employment-related lawsuits, fiduciary liability and more afflict family businesses just as much as other companies. In fact, they may even have more of an impact, since many family companies typically lack the business plans and established policies to mitigate those risks.

To leverage your family dynamic and create success for your company, the professionals at Ferris Capital can help you establish a crucial list as a starting point to identify and understand the unique risks of family-owned businesses so you can create a risk management plan to address the issues and avoid costly lawsuits.

Retirement planning for business owners

Choosing a plan
Ferris Capital recognizes that as a small business owner, you have many options when choosing retirement plans for your employees, so you can find a plan that is best suited to meet both your needs and the needs of your employees. By exploring all of your options and fitting them to the fiscal and operational structure of your company, you can decide how much you can and want to contribute to employee retirement plans and what type of plan can best handle these contributions. Options include:

Payroll deduction IRAs

This type of IRA is the simplest for employers to implement, as it is largely under employee control. With a payroll deduction IRA, employees choose where to house the IRA and how to invest it, and only employees contribute to the account. It requires no plan documents and no employer contribution. Employees simply authorize a payroll deduction amount for the account, and automatic retirement savings is implemented. This type of retirement plan has a $5,500 annual contribution limit. This can be a good option for businesses that don’t have the funds to offer an employer match and don’t have the resources to deal with the documentation and administrative requirements necessary with defined compensation or benefit plans.

Simplified Employee Pension (SEP) IRAs
This type of IRA offers the opposite type of contribution from a payroll deduction IRA, as 100 percent of contributions are made by the employer instead of the employee. These contributions are immediately vested for the employee. The employer can decide on a year-to-year basis whether to contribute to SEP IRAs, but all employees must receive uniform benefits, for example, the same percentage of compensation. SEP IRAs have a limit of 25 percent of the employee’s compensation or $52,000 annually, whichever is less. SEP IRAs are a low maintenance way to set up retirement savings for your employees, and are ideal for an employer who can afford to contribute to his or her employees’ retirement savings but wants to do so without legal hassle. As an added bonus, employer contributions to employee’s retirement savings are deductible from the employer’s income for tax purposes.

Savings incentive match plan for employees (SIMPLE) IRAs
A SIMPLE IRA allows both employers and employees to contribute to retirement savings plans. Employees can contribute up to $12,000 per year, while employers must either match at least 3 percent of employee contributions or contribute 2 percent of employees’ salaries. This type of plan also allows for minimum administrative duties and allows employers and employees to share the responsibility of retirement contribution. With both SEP and SIMPLE IRAs, small employers can claim a tax credit for part of the necessary startup costs for these types of plans. The credit is equal to 50 percent of the cost necessary to set up and administer the plan, up to a maximum of $500 per year for each of the first three years.

Safe harbor 401(k)s
A variation of the traditional 401(k), safe harbor 401(k)s make employer contributions mandatory rather than optional. This encourages plan participation by employees and eliminates the need for nondiscrimination testing for employer contributions, as employers are required to contribute to all employee plans. The contribution limit for safe harbor 401(k)s is the same as for traditional 401(k)s—each employee may contribute up to $17,500 annually.

Traditional 401(k)s 401(k)s fall into the category of defined contribution plans, meaning that they allow employees to save money in a tax-deferred account and withdraw this money at retirement for living expenses. While income is not taxed when it is put into a 401(k), this money will be taxed when it is withdrawn in retirement. Employees can contribute a set amount for retirement by deferring a portion of every paycheck and putting that money into a 401(k). However, it is usually more difficult to withdraw from a 401(k) than from an IRA before retirement, and some plans do not allow this. As with an IRA, any early withdrawal will be subject to a penalty tax.

Automatic enrollment 401(k)s
Automatic enrollment 401(k)s are just what their name implies—401(k) plans that automatically enroll eligible employees in the plan. Employees are allowed to change the amount of their contributions or opt out of the plan altogether, but they will initially be automatically enrolled. As with safe harbor 401(k)s, this type of plan is also exempt from annual nondiscrimination tests, as it too requires employer contribution. When employees are automatically enrolled, their initial contribution must be at least 3 percent of their salary. This type of plan usually provides a high level of employee participation.

Roth plans
For both 401(k)s and IRAs, there is an additional option called a Roth plan that alters the way tax is applied to employees’ retirement funds. With a traditional 401(k) or IRA, money put away for retirement is tax-free when it goes into the account, but will incur taxes when it is withdrawn at retirement. A Roth plan taxes money when it is put into the account, but allows retirees to withdraw this money tax-free. This type of plan is usually used by employees who are in a lower tax bracket now than they expect to be at retirement. Roth plans give employers yet another option to contribute to employee retirement.

Defined benefit plans
Defined benefit plans differ from defined contribution plans because they are guaranteed to pay employees a specific amount of money when they become eligible for retirement benefits, whether they contribute to their retirement savings or not. This money is either paid out on a per month basis or in a lump sum, depending on the terms of the plan. These plans use a formula to determine how much employees will receive, based on criteria such as salary and how long they have worked for a certain company. The employer pays this cost, but there is a maximum annual benefit of either $210,000 or 100 percent of the employee’s final annual pay, whichever is less. These plans force a lot of employer contribution, but, similar to vesting, allow employers to protect themselves against a high turnover rate. Defined benefit plans are usually more complex than other types of plans and also cost more to establish, so small business owners with limited resources may want to consider a different type of retirement plan for their employees.

Profit-sharing plans
A profit-sharing plan is a plan that gives employees a share in the profits of the company, so the employees’ retirement earnings may fluctuate based on the company’s profitability. Additionally, employers have the option to contribute as much as they want each year, and can choose not to contribute to employee profit-sharing plans if it is a bad fiscal year for the company. The contribution limit for profit-sharing plans is either $52,000 annually per employee or 100 percent of employee’s compensation, whichever is less. The employer also must choose how to divide the contributions to participants’ accounts, as the money goes into a separate account for each employee. Many employers choose to divide this based on a percentage of each employee’s salary, but since contributions are discretionary, you may choose to distribute the funds as you want, as long as you have a set formula for determining how contributions are allocated. While this offers a great amount of flexibility, the administrative costs for profit-sharing plans can become quite high. Profit-sharing plans are also subject to an annual testing requirement that ensures benefits are being proportionally distributed among employees.

Business succession options owners

Creating a business succession plan may be one of the most difficult management challenges of your professional career. 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 your company into the future is to start forming a plan now.

Transfer Ownership to Next Generation
When choosing and grooming successors for your business, you must consider their 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. You have 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 your successors are family or not, it’s important that you begin the succession process early. The first step is to recruit talented employees from the beginning and help them develop their leadership skills within the company. You should also get them comfortable with taking over long before they actually have to step in, to ensure a smoother transition. It may also be helpful to get clients used to the new leadership before they take office. Adequately preparing your successors is one of the best things you can do to maintain your company’s success in the next generation.

If you choose to transfer the business to your 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 (in other words, it must not provide a greater benefit to one class of employees over another). 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 you are near retirement; rather, this strategy is best employed early in the succession planning process while you are still very active in the business. This option is most useful to provide growth capital for the business; however, it can provide liquidity to you in the long run.


If you would like to begin to transfer the business 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 owners 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 as a means to provide growth for the business.

You may choose to sell your 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. As a business owner, you are motivated to sell the stock in your business in order 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. You should discuss the options available to you with your advisors.

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

Buy-sell agreements
What will happen if you or a business partner wishes to retire, 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 in the event that a partner/shareholder should die, but it should also include provisions for retirement or other departure, disability and for the divorce of a partner.

If you are an individual business owner, many of these items still apply; you simply have the added challenge of determining who will purchase your business in the occurrence of one of these events.

Business valuation

How do you put a price tag on a company? They aren’t the type of thing bought and sold off a supermarket shelf. Is a company worth only the property it owns? Or is it the work the owner and staff have put into it?

The complex process used to determine a company’s official value is known as “business valuation.” Having a professional valuation can be inconvenient, but knowing a company’s formal value is extremely important when planning or transferring ownership. Ferris Capital is well-versed in business valuation exercises, and can help clients navigate this task.

There are any number of reasons business owners need to know the value of their company. Some of the most common include:

o Estate planning purposes
o Sale of the company
o Succession planning
o Liquidation of the company
o Establishing personal net worth
o Property division in a divorce
o Preparation for initial public offering

Business valuation can be a lengthy process with a vast number of shifting factors, only some of which are looked at here. Business owners should not attempt to evaluate their own company, it should be left to a professional, objective third-party. Valuations should be done regularly, especially if the value is suspected of potential tax implications for estate or succession planning. Valuations can also be particularly important for partnerships where surviving parties may be required to purchase a deceased partner’s share in a company.

If you are considering a business valuation or are hoping to get more information on how your company’s value affects you, contact Ferris Capital for guidance and professional advice.

Transferring Business Assets

As a business owner, setting up a successful wealth transfer plan can seem especially daunting. It takes careful planning to ensure that your business assets will not have to be liquidated to pay off income, gift or estate taxes. Luckily, there are many options to ensure that your business legacy will benefit your family in the best possible way.

To decide the best course of action for your business, you first have to consider some tough questions. Do you want your children to take over management of your business or simply have a share of the business profits? Is your business functioning in a way that would allow your family to maintain an income? How active is your family in your business? Do you want to retire from your business or wait until your death to pass it on? Is there a buyer interested in your company? The answers to these questions will lead you to one of two main options for business transfer: continue or sell.

Ferris Capital’s combined set of diverse industry and training backgrounds allows for us to advise clients on a variety of choices upon transferring their business assets. Some possible options include;

Grantor Retained Annuity Trusts (GRATs)
Family limited partnerships
Lifetime gifts
Selling outright
Buy-sell agreements

With each of these options, it’s important to consider which will give you the ideal timeline and amount of control over your business. Depending on the phase of life you are in, you may be ready to be done with your business, or you may be having trouble letting go. Whatever your situation, the most important thing is that you choose a plan that allows you to feel comfortable with the business legacy you leave behind.

Unique Risks for Private Companies

As the director or officer of a private company, you may assume your position is relatively low risk compared to the executive management at a public company, which is subject to heavy securities regulation.

Despite the fact that private firms are spared from some of the costly securities lawsuits that plague public companies, the directors and officers of private companies face an agglomeration of their own unique risks and challenges. In many cases, these risks have even more fallout for private companies. A director and officer (D&O) lawsuit can take a substantial amount of time and capital to defend, which can cripple or bankrupt a company.

To protect your private company from a costly lawsuit, understanding the areas where your business faces the most risk is the first step. Use this list as a starting point to identify the potential liabilities in your company so you can create or tailor a risk management program to attack these issues.

What D&O Claims do Private Companies Face?
Private businesses of all sizes and in all industries are susceptible to D&O lawsuits. Plaintiffs include regulatory agencies, shareholders, employees, and customers and clients. One of the most financially damaging claims to a private company is an employment practices liability lawsuit.

Shareholders are especially a prime plaintiff for D&O lawsuits, as they often have a higher personal stake due to the typically limited number of investors in the company. Some types of lawsuits include the following:

• Merger objection lawsuits, filed by displeased shareholders when the company is or is about to be acquired
• Majority shareholders buyout the minority shareholders and then go public as soon as they own all the stock
• Freeze-out mergers, in which minority shareholders are forced to sell their stock for less than fair market value
• Breach of fiduciary duty, including self-dealing and conflicts of interest
• General business mismanagement and bankruptcy lawsuits

Ferris Capital is uniquely positioned as a Wealth Advisory firm, in that it has multiple attorneys on staff to help point clients in the proper direction as heads of private companies.

Staying on top of Estimated Taxes

As a business owner, you’ve probably paid estimated taxes before. However, just because you were required to pay estimated taxes in years past doesn’t necessarily mean you owe them this year. The circumstances of your businesses may have changed or you may have become employed in addition to owning your own business. Consider the following circumstances in which you will not be required to pay estimated taxes:

• You will owe less than $1,000 in federal taxes.
• You paid no taxes last year, due to either unemployment or a lack of profit from your business.
• You have an employer in addition to your own business, and the amount withheld from your paycheck by this employer will amount to at least 90 percent of the total tax you’ll pay for the year. If you want your employer to withhold additional tax from your earnings for this purpose, there is a line on your W-4 form that provides for this.

Ferris Capital works in lock-step with our clients’ CPAs on multiple fronts. Beyond “tax-loss harvesting” strategies, carry-forward loss discussions, and other manners of tax planning, Ferris works to understand each client’s unique tax situation as part of their overall financial plan.

Get in touch with our experts

 David Ferris

David Ferris


The Ferris Capital Process

We firmly believe that the best results come from a consistent process with a thoughtful design.

We use low cost ETFs, mutual funds, individual bonds, and stocks to build custom portfolios for our clients that are in line with their larger financial plan. We always seek to use the lowest fee, most efficient investment vehicles possible and to utilize best of class managers when they offer more value than an index or ETF.

Understand Your Goals and Financial Situation 

Ferris Capital meets with you to fully understand your goals, time horizon, anticipated cash flows, and feelings towards investments in general . We also conduct an in-depth evaluation of your total financial picture including insurance, wills, trusts, 
and employee benefit options.

Create a Financial Plan Tailored to Your Goals

Ferris Capital works with you to develop a comprehensive financial plan that positions you with the highest probability of success in meeting your goals. The plan includes goal-driven asset allocations, tax sensitivity, long-term estate planning, and overall 
risk management.

Establish the Proper Accounts and Legal Structures

If applicable, Ferris Capital can direct you to top notch accountants and attorneys or work with your existing relationships to formulate and execute the structures and strategies to best protect your assets from taxes and liability. 

Current Investment Evaluation and Tax Analysis 

We analyze your current holdings to see if there are any embedded taxable gains or additional issues that should be considered in building your portfolio. If there are any issues, we will construct the investment portfolio to address those issues specifically and potentially use the existing investment as proxies to our investment model choices. 

Portfolio Construction

Using the risk profile from the financial plan and the considerations from the analysis of your existing assets, we manage your capital in one of our strategies that corresponds with your risk level which are designed using our proprietary market outlook, historical asset class performance, manager interviews and internal expenses. 

Ongoing Maintenance, Monitoring, and Reporting 

Ferris Capital monitors market and portfolio changes and keeps you informed on performance, risk and goals-based progress through quarterly calls or meetings. We also look to address any liquidity needs or life changes that may impact the long-term financial plan. 

Why Ferris Capital?

All investment firms offer “financial planning”. However, not all investment firms are bound by the fiduciary standard and not all firms are conflict free. Ultimately the most important difference between firms comes down to the people, their experience, and the service they provide.

At Ferris Capital, our independence ensures that your interests always come first. We believe that transparency and integrity are critical to building long-term relationships. We’re devoted to a client experience that revolves around the needs of you and your family, not around commissions.

Our work doesn’t end with a financial plan; that’s where it begins.


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