We're close to wrapping up this back to basics series, and we've been discussing the final step in building a successful, profitable small dojo -- future planning.

Yesterday I told you we'd discuss the last part of future planning in today's email, which involves getting certain financial and legal documents in place. I actually covered this in great detail in a recent email series on protecting your dojo, so what follows is actually an excerpt from that series.

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Preparing for Tragedy to Strike

Have you considered what would happen to your family and business, should something catastrophic happen to you? Most school owners don't, but if your school is your family's primary source of income, it's something you need to consider.

There are a couple of steps you can take to protect yourself and your family if something should happen to you.

Life Insurance - Term life insurance is cheaper than most people realize. You can get a decent policy that will pay out $250k+ for a lot less than you might think. I suggest that you get coverage closer to $500k, simply because you have to consider what your spouse and kids are going to do if you're gone. 

There will be a lot of incidental expenses, they may not have income coming in for a while, and it would be nice to allow your spouse to pay down your debt and bills if you passed on unexpectedly. 

Key Man Insurance - The death of the "key person" in a small business usually means that the business dies with them... immediately, in most cases. Key man insurance is a policy that your company takes out on you to keep the company going during such an occurrence. The company pays the premiums and it owns the policy. 

In the event that you should pass on unexpectedly, the policy will pay out to the company, so there is enough cash on hand for the company to survive until your heirs can either sell the business or find someone to replace you. 

This is important because your family will have enough to worry about if you pass on, and the last thing they need is for your business to be gone, for the bank accounts to be empty, and for your business creditors and landlord to be knocking on the door looking for their money.

Disability Insurance - What if you're injured or become catastrophically ill... what kind of impact would that have on your business? Think about what would happen if you couldn't step out on the floor for an extended period of time. 

Just in the last month, I've seen three martial art school owners post on Facebook about how they are facing severe health issues, and in one case the poor guy had to close his school. A disability insurance policy will pay you an income should something similar happen to you, and it should not be overlooked.

Preparing for a Rainy Day

In addition to restricting financial access, and setting up protective insurance policies, you also need to prepare for a rainy day. A "rainy day" might mean the next recession, losing a key staff member, getting sued, having your school wiped out by some unforeseen catastrophe (flood, fire, or other natural disaster).

So, here are a few action items you should consider to prepare for such an event.

Rainy Day Fund - Even when you're first starting out, you should be tucking away money each month in a rainy day fund. Your goal should be to have enough money tucked away--in cash--to pay your personal bills and the bills on the dojo for at least three months. 

It may take you a while to build up this cushion, so start building it up immediately and only use it in the direst emergency. Also, put it in an interest-bearing account so it's not just sitting in the bank doing nothing. The APY rates suck right now, but even 1.1% is better than nothing.

Retirement Account - Not only can it be a nice tax write-off, a retirement account will protect you down the road when it comes time to transition out of running your school. 

Start investing as early as possible! Compound interest adds up over time, and even a small yearly investment early on could turn into a large nest egg over several decades. Before you do this, do yourself a favor and read up on no load index funds and other simple, long-term and low-risk investment vehicles.

Emergency Cash - It's always a good idea to have some emergency cash that's kept close at hand. $1,000 of emergency cash can help out a lot in the case of a natural disaster that prevents you from getting to a bank or other financial institution. It may seem like a lot of cash to have on hand, but if disaster strikes you'll be glad you have it.

Pay Off Your Debt - The last thing you want is a load of debt when the next recession hits... and it will hit eventually. Pay down your debt when times are good, so you don't have it when times are lean.

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Okay, that pretty much covers it. Next week I'll wrap this series up with a few final thoughts. Stay tuned.