The tech bubble burst and subsequent restructuring place in corporate America has cast talented workers out of jobs. Many of these talented workers, armed with a “can do” attitude and entrepreneurial talents honed in the past five years, can be expected to go off and start their own small businesses.

The success or failure of these new enterprises will hinge not only on their creative skills, the markets and economy, but also on how well they develop a financial plan for their business. The scope of a good plan should incorporate the traditional business plan, as well as the personal financial plan of the business founder/owners.

There are a few key elements of the business plan that are likely to impact the personal financial plan of the owners. For example, the form of business ownership should be coordinated with an owner’s estate plan.

If the business is incorporated, the stock held by the owner should be titled in the name of the owner’s living trust, if a trust exists. If not, upon the owner’s death, the stock interest could be held up in a probate court for months, or even years, as the court rules on a change of ownership.

If the owner held her stock in joint tenancy with her husband, for example, and then died, her surviving spouse would not have the advantage of inheriting the business interest with a 100% stepped-up basis. In other words, were he to sell the interest to the other owner/shareholders, he would be taxed on one-half of the gain. In this case, the parties would be better off holding the stock as community property which would allow the survivor to inherit the ownership interest with a full, stepped-up basis.

Cash is king in a small business startup…and as the business grows, cash needs will grow at a rate seemingly faster than the business. Notwithstanding winning the lottery, the founders may find themselves borrowing heavily to keep the business afloat.

If the business is mature enough to have developed a banking relationship, as an entity it may be able to borrow or set up a line of credit with a bank. Even though the business may be the borrower, and the form of business ownership is a corporation or a limited liability corporation, our founders will probably have to personally guarantee the business debt…even a Small Business Administration guaranteed loan. Banks always look for a secondary source of repayment!

Therefore founders should have a good feel for their personal cash needs and how they can be met if all the business cash resources are required to keep the enterprise afloat and the bankers happy. Founders who sign as personal guarantors should also be aware of what they stand to lose under the worse case scenario…their house for example.

Looking on the brighter side, a successful business can provide its founders/owners with many personal financial benefits that directly affect their personal financial plan.

Health insurance, certain forms of life insurance, disability income replacement, as well as nursing home insurance can be paid with company funds. Retirement plans, funded by the company for the benefit of the owners, offer a terrific tax-advantaged wealth creation benefit.

Finally, the business plan should provide for an exit strategy for the owners in the most tax efficient way in the event of disability, death, or retirement. What the owner or her heirs will receive should be part of the owner’s plan. How the company will fund these eventualities…insurance, deferred compensation, sinking fund, etc… is an integral part of any good business plan. The personal and the business plan should complement each other!