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Setting the Records Straight
If you want to get serious about your own wealth, start by organizing your records

First in a series on financial planning for small-business owners.

If entrepreneurs ran their companies the way some of them run their personal finances, we'd probably have a lot fewer small businesses. Financial planners tell tales about business owners who know every last detail about their company, but seem to have no clue what's going on in their financial affairs and portfolios. Planning often seems to consist of shoving each new piece of paper in a desk drawer.

And there's no shortage of paper to shove, including the vital records that in an entrepreneur's life are both personal and professional: wills, insurance policies, succession plans, bank and brokerage statements, and dozens more. Even if you could actually put your hands on all such documents right now, could anybody else? Do you keep them--or at least copies of them--all in one place? And have you ever looked at them all at once to see whether they work well together?

That's the point of this series. Unless you begin looking at your personal finances in an organized way, and unless that advice is tailored to the special circumstances of a small-business owner, you're probably wasting much of the wealth you've built up in your company. And you can't possibly start until you've taken the basic step of organizing your records.

"The key thing with all of these records is to file them in such a way as you or members of your family can quickly find them," says Deborah L. Jacobs, author of Small Business Legal Smarts (Bloomberg, 1998, $16.95). She uses accordion files for financial statements, conventional files with labels like "Jack's College" for her son's savings account, and a bank safe deposit box for the really important stuff, like the deed to her home.

Just as important as keeping good files is keeping them the right way, she says. Don't put your will in your safe deposit box, for example, because if you die it could take court action for your spouse to gain access, and that won't happen quickly. A good strategy: keep most originals in a secure place, but keep photocopies in a separate and easily accessible spot.

Here are the key records you or your family should be able to locate in an hour or less. Let's start with what goes into the filing cabinet:

  • Tax returns, including receipts and other supporting documents.
  • Key business credentials and other such records. "My husband's business requires a certificate, so we have a file, 'Ken's Certificate of Business,' " says Jacobs, who is also a lawyer.
  • Your succession plan or partnership cross-purchase agreement. You don't have one? Your business, and your family's financial security, could die with you.
  • The signed, notarized original of your will. If anything were to happen to it, your attorney could easily execute another.
  • Living wills, powers of attorney, and any other documents that might be needed if you became incapacitated.
  • Insurance policies you need to consult from time to time, such as health, homeowners' and auto.
  • Financial statements, including those for your checking and savings accounts, retirement mutual funds and pensions, IRAs, and money market and other brokerage accounts. "Just keep the newest ones," Jacobs advises. "Tear up the earlier statements so you don't crowd your files."
  • Records of childrens' investments, such as savings bonds and college accounts.
  • Account numbers of credit cards, and the 800 number to call if they're lost or stolen.
In the safe deposit box goes "anything that's extremely difficult to replace," says Jacobs, including:

  • Property deeds.
  • Life insurance policies.
  • Birth certificates.
  • Social security cards.
  • Marriage certificate. "A lot of people think a marriage certificate is a sentimental document," says Jacobs, but when her father died a year ago her mother had to produce hers to qualify for Social Security benefits.
  • Passports.
  • Savings bonds and other securities.
  • A backup Zip disk of all your computer files.
A few of these documents need to be authenticated, Jacobs points out. Birth certificates typically must feature the raised seal of the clerk of the county in which they were issued. Wills, trusts, powers of attorney, and many other legal documents must be notarized.

Once everything is organized, Jacobs says you should prepare a list of all these items indicating where they are, and put that list where it will easily be found. Think of it as a professional obligation to your business. "I haven't gotten around to that yet myself," confesses Jacobs.

By Timothy Middleton in Short Hills, N.J.




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