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From the Desk of:

John D. Pivirotto
Calif. Insurance License #0699308

Financial Concepts

Burlingame, CA 
(650) 348-1880
(650)348-0255 Fax


Helping Build & Protect Your Future

Investment Advisor Representative
Securities and Advisory Services
offered through
Lincoln Financial Securities Corporation
Member SIPC

Current tax law is subject to interpretation and legislative change. Tax results and the appropriateness of any product for any specific taxpayer may vary depending on the particular set of facts and circumstances. The information contained in this newsletter is not intended as tax, legal, or financial advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek such advice from your professional advisors. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Written and published by Liberty Publishing, Inc. Copyright © 2009 Liberty Publishing, Inc.
Key Employees—Protecting Your Most Valuable Assets 
As a business executive, suppose you were to arrive at your desk one morning only to discover that a key sales manager had died unexpectedly during the night. Have you ever considered how such a turn of events might affect your company? Along with losing a valued member of your management team, you would also be losing the manager’s skill, his or her “know-how” and, perhaps, the important business relationships he or she had cultivated over the years. 

Navigating the Shoals 
Although it is impossible to prevent the sudden and unexpected loss of a critical employee, you can receive compensation through key person insurance. A key person policy covers or “indemnifies” a company against the loss of a valued team member’s skill and experience. The proceeds help provide funds to recruit, hire, and train a replacement; replace lost profits; assure customers that business operations will continue; and reassure lenders that funds will be available to help repay business loans.

 Generally, the company owns the policy, the premiums are not deductible, and the death proceeds are received by the company income tax free, although there may be alternative minimum tax (AMT) consequences for businesses organized as C corporations. 

Charting a Course 
Needless to say, it is not easy placing a value on a key employee. Generally, there are three different approaches used to determine the amount of insurance that is necessary: 

1) The “multiple” approach uses a multiple of the key person’s total annual compensation, including bonuses and deferred compensation. The popularity of this method may reflect the difficulty business executives have in quantifying a key employee’s value. On the other hand, the disadvantage is that the estimate, typically for five or more years’ annual compensation, may or may not relate to actual needs. 

2) The business profits approach is a more sophisticated method. It attempts to quantify the portion of the business’s net profit that is directly attributable to the key person and then multiplies that amount by the number of years it is expected it will take for a replacement to become as productive as the insured. For example, if net profit attributable to the key employee is estimated at $250,000 annually, and it is expected that it would take five years to hire and train a replacement, then the policy’s face amount would be $1.25 million. 

3) The present value approach calculates the present value of the profit contributions of the key employee over a specified number of years. This amount is then used as the face value of the policy. For instance, with an anticipated profit contribution of $250,000 per year for the next five years and a discount rate of 8%, the policy’s face value would be about $1 million. This method assumes insurance proceeds can be invested at a given rate of return and will be expended over a given period of years.

 Business executives should consult with their insurer regarding the company’s specific approach. However, regardless of which method is best suited for your business, key person insurance is a vital component in protecting your business from the loss of your most valuable assets—the people who help it grow and prosper. $ 

Educating Your Employees about Their 401(k) Plan  
Workers often pass up the opportunity to participate in their company plans because the information presented may seem confusing or difficult to understand, but 401(k) plans offer employees an excellent means to save for retirement. To engage the interest of your employees and to educate them about the potential benefits of your plan, the information sessions should be carefully crafted. With a little effort, you can increase the effectiveness of these presentations. Here are some tips to help boost participation rates in your company’s 401(k) plan: 

Prepare employees before the presentation. Assume your employees have little money management experience. Treat them as you would prospective customers. When announcing the information session, explain what they will learn and why the information is important to them. Emphasize how they will benefit from attending the session.

 Keep the tone light. A little humor goes a long way in holding an audience’s attention. Encourage presenters to use clear, simple language—avoiding “legalese,” jargon, and complicated charts and graphs. Money management tips and worksheets can be used to engage the audience. Remember to leave plenty of time for questions and answers. 

Sit in on the session. Doing so will allow you to be sure the information presented is fair and accurate. It also demonstrates to your employees the value you attach to the retirement plan. Gear the material to the audience. Avoid the “one size fits all” presentation. The material should be geared to the audience’s level of sophistication. Novice 401(k) participants may be overwhelmed with advanced information, while experienced contributors might become bored if too much time is spent covering the basics. If your workforce includes both beginning and experienced participants, consider offering two information sessions and letting your workers choose the one that is most appropriate for their needs. 

Demonstrate how a 401(k) plan can make it easy to save for retirement. Many employees who are concerned about stretching their paychecks from week to week may fear they do not have the excess income to contribute to a retirement plan. A skilled presenter can address this concern by emphasizing the potential tax benefits of a 401(k) plan. With a few simple calculations, your employees will see that once tax savings are considered, their contributions may not take as large a chunk out of their paychecks as they might have thought.

 Support your employees in keeping their contributions to a comfortable level. Avoid overemphasizing contributing the maximum amount allowable if that exceeds an employee’s financial ability. Point out that even a small contribution is better than none, especially if the company is matching all, or a portion, of it. Emphasize that it is far better for employees to start small now and increase their contributions later when they can afford to do so. 

A well-crafted 401(k) plan presentation can go a long way toward boosting participation rates in your company’s retirement plan. By targeting the information session to your employees’ needs, you can help them make the most of their retirement plan option. And, it’s important to bear in mind that this needn’t be a “one time only” event. Get in the habit of scheduling a companywide 401(k) presentation at least once a year. More frequently scheduled information sessions can help make the plan accessible to new employees who join the company during the year, as well as encourage existing 401(k) participants, who may be thinking of raising their contributions. $ 

Growing Your Business on a Small Marketing Budget 
Marketing is a challenge when the amount of money your business can afford to spend on advertising and public relations is limited. But, with a bit of creativity, you may find you do not need a big marketing budget to build your company’s reputation and spread the word about your products and services. Here are some ideas to help you kick-start your marketing efforts without draining your cash reserves: 

Identify your core customers. Marketing dollars are often wasted through indiscriminate targeting. Think about who is most likely to patronize your business and what type of customer you wish to attract. By pinpointing the group of people you are trying to reach, you may be able to rule out more expensive forms of marketing, such as advertising in mass media outlets or large-scale direct mail campaigns. 

Concentrate on the classifieds. A small display ad or a few lines offering your services in the classifieds section of a newspaper or trade publication can bring M in more business than you might expect. In addition to posting a phone number, refer potential customers to your website for more information about your company. 

Network, network, network. If your customers are based locally, seek them out by attending community meetings and events where you are likely to run into them. Chamber of Commerce and Rotary Club events are good places to meet members of the local business community, but you may also be able to make valuable contacts at softball games, holiday parties, or school fundraisers. Always have your business cards with you, and don’t be embarrassed about distributing them to anyone who might be a potential customer. 

Keep the customer satisfied. All business owners know how important it is to provide efficient and friendly service to customers. But there are many additional ways you can make customers feel special and encourage them to come back. For example, you may want to offer an unexpected discount or bonus item to a client who places a large order. To improve the chances that a good customer will return, send a thank you note with a personalized offer of a discount on future business. 

Ask for customer feedback. Customers’ comments will provide you with useful insight into your company’s performance, while making customers feel that you value their opinions. Ask for customer referrals. When clients compliment your company’s products or services, ask them to tell their friends about you. If you explain that you are in the process of growing your business and greatly appreciate their patronage, many customers will be happy to recommend your business to others. Consider offering incentives to existing customers for providing the names and contact details of people who may be interested in doing business with you in the future.

 Be your own PR agency. You don’t need to hire a professional to establish relationships with media outlets that could be useful in publicizing your business. Start by sending e-mails to reporters and editors at local newspapers and trade journals covering your industry. Include information about yourself and your company, and offer to make yourself available for interviews as an expert in your field. You may also want to suggest ideas for guest editorials. If an article related to your business catches your interest, write a letter to the editor. Getting your company’s name mentioned in print can give an instant and no-cost boost to your public profile. 

Make the most of trade shows. You may not be able to afford a large booth at a trade show—or any booth at all. But even if you are not among the exhibi tors, trade shows can provide valuable opportunities for forging and improving relationships with clients and business partners. Before attending a trade show, scan the list of participants for useful contacts. Arrange as many meetings as you can in advance, and make a list of people you intend to track down once you arrive. 

Use the Internet to expand your market. Most businesses now have web addresses, but the quality of websites varies greatly. Even if you know nothing about coding, reading up on Internet marketing techniques may provide you with some ideas on how to improve the appearance and content of your website. If you can’t afford to hire professional web designers, consider bartering your products or services in exchange for help with your website. Step up your networking by writing a blog or participating in online communities relevant to your industry. Try something new. Your marketing strategy should evolve as your company grows. Just because a particular marketing tactic has worked well in the past does not mean it will always be the best way to bring in business. Paying attention to customer feedback and changing market conditions can help you develop fresh ideas for building relationships with new and existing customers. 

Meeting the Entrepreneurial Challenge As many corporations downsize to meet competitive challenges, former employees from all levels take the opportunity to strike out on their own. While some do so out of necessity, others use the opportunity to act on a long-standing dream or ambition. One of the great attractions of entrepreneurial activity is the independence and satisfaction of working for oneself. However, independence is a two-sided coin. The other side is responsibility. What used to be provided by the employer—retirement benefits, health insurance, life insurance—now becomes the self-employed’s responsibility. Proper planning can help today’s entrepreneurs meet these challenges and responsibilities. 
Copyright 2009 Liberty Publish- ing, Inc., Beverly, MA. The opinions and recommendations expressed herein are solely those of Liberty Publishing, Inc., and in no way represent advice, opin ions, or recommendations of the Financial Planning Association, its affiliates or members. CFPTM and CERTIFIED FINANCIAL PLANNERTMare federally registered service marks of the Cer- tified Financial PlannerBoard of Standards (CFP Board). This summary does not constitute legal and/or tax advice and should only be relied upon when coordinated with a qualified legal and/or tax advisor. Febuary, 2009.
Planning Strategies
*Disclosure – Securities and Advisory services offered through representatives of Lincoln Financial Securities Corporation, member FINRA & SIPC. FINRA Branch Office: 233 Bloomfield Road, Burlingame, CA 94010. 
This is not an offer to sell securities, which may be done only after proper delivery of a prospectus and client suitability is reviewed and determined. Information relating to securities is intended for use by individuals residing in California, Oregon and Colorado only. Advisory Services are offered to residents of the state of California only. Lincoln Financial Securities Corporation is not affiliated with Financial Concepts. Financial Concepts offer insurance & financial services to residents in California and Oregon. Variable & Group insurance products offered through LFS Marketing and Insurance Sales Corporation; fixed insurance products offered through Financial Concepts Insurance & Financial Services.
John Pivirotto’s California Insurance License #: 0699308
Financial Concepts’ California Insurance License #: 0786047