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Business Planning: Protect What You Have Built

In business, risk tolerance can be your most valuable asset. In planning for your long-term future, it can be the greatest threat to your accumulated wealth. It's never too soon to get your ducks in a row.

Ron Adams  

Ron Adams


Successful entrepreneurs are skilled at turning their visions into vibrant, thriving businesses. They're nimble in the marketplace and aren't afraid to take chances. They're good at many things -- but planning for the future isn't necessarily one of them.

In a recent survey of 500 business owners by Entrepreneur magazine, 80% reported not having a power of attorney, only 24% had a will and 13% had a trust, and 65% had no planning documents at all. (See the Entrepreneur article, “An Emergency Safety Valve: The Case for Entrepreneurial Estate Planning.”)

If you or a loved one is a business owner, those statistics may produce a lump in the throat. They might also prompt you to take action.

Realities of Business Ownership

Consider how close this scenario comes to your situation: You built and nurtured your business for several years. Your business ownership is your most valuable asset and will provide the foundation for a comfortable retirement. You've achieved a lot of success, but you know how fragile it can be. Your family's success and prosperity may depend largely on how long you can sustain the business. Your financial protection consists of insurance, and your savings provide your financial cushion.

What you may have overlooked is that even the most well-protected businesses can be exposed to risk if its owner doesn't have core planning documents. Having a last will and testament, living trust, durable financial power of attorney, health care power of attorney, and other important documents isn't just a good idea. It's essential.

Insurance can cover you for unforeseen events like medical emergencies, but only a coordinated estate plan and business exit strategy prepare you and your company for a healthy future. As a recent article, “5 Estate Planning Tips for Entrepreneurs,” points out, you need to take additional steps, such as a buy-sell agreement with your co-owners and preparing a well-conceived succession plan.

Getting Started

A will lets you lay out your final wishes. This most basic estate planning document allows you to specify how your assets will be handled after your death, and to whom they should be transferred.

You should also have a durable financial power of attorney. You're used to being in charge - until you need surgery that puts you out of commission for a few months. Without a clear plan in place, questions start piling up. Who pays the bills? Who keeps your customer relationships alive? Who accesses your bank accounts, and how?

To keep your business and personal affairs private, you may want to set up a revocable trust. Because a will must pass through probate, that can be a problem for a small business that needs to protect sensitive information. Moreover, the cost and delays associated with probate can threaten business continuity. If different needs arise in the future, the trust can be modified and assets can be moved in and out to accommodate business needs.

Business Succession

We can help you think through and set up a business succession plan. At the core of this plan is a simple question: What happens to the business when you want to move on, and preserving your business value requires an orderly transition, either internally or to an outside party? Or what happens if the unexpected occurs, and your role is diminished by illness, injury, incapacity or death?

A good succession plan clarifies how ownership will be transferred; establishes rules for hiring, compensating and promoting family members; and specifies how disputes will be resolved. The most important issue here is putting a plan to paper and defining "succession" as you see it.

If you have business partners aside from family members, set up a buy-sell agreement. This document is a mechanism for redistributing an owner's interest in the event of death or disability. Such an agreement is also helpful if an owner declares bankruptcy or is going through a divorce.

Buy-sell agreements include cross-purchase and stock-redemption agreements that allow the remaining owners to redeem your stake in the business. You want your beneficiaries to be fairly compensated, so this agreement will also specify how the value of the business will be determined: the asset approach, the income approach, or the market approach.

See also: "Business Succession Planning: Avoiding the Key Mistakes" and "Succession Planning: Passing Down Control of the Family Business"

Peace of Mind

A willingness to take risks, as part of a business strategy, is the key to many entrepreneurs' success. But risking your accumulated wealth by ignoring or delaying sound estate and business planning is not a strategy - it's a failing.

Roll the dice in business if you like, but resolve today to devote a few hours to protecting what you've built. It will give you peace of mind that you'll never appreciate until you have experienced it.

More about estate planning and asset protection at Hoopes Adams & Scharber.