We’ve noticed a lot more people coming in lately who want help with their small businesses. This help may involve choosing the best way to organize the business, such as whether to set up an LLC or a corporation, or it might be about how to pass the business on to the next generation -- but helping with small business planning seemed like a natural extension of the estate planning we already do.
Many of you don’t have small businesses, but that doesn’t mean our business planning won’t be helpful to you! Anyone with a second home or rental properties should know that there are a lot of liability issues associated with these properties. If someone is injured while on your property, you could be facing a lawsuit. Without the proper protections, you could end up paying their bills.
That’s why we often recommend people set up their rental properties and vacation homes in an LLC (limited liability company). With the proper legwork, your real estate is separated from your personal assets, which limits your liability in the event someone decides to sue you. You may think that this sort of lawsuit is unlikely, but isn’t that why you buy insurance? This type of planning can be thought of as a little extra insurance just in case something does happen (but without the annual fees).
Another facet of business planning we offer is succession planning. A recent article by Forbes cited a study in which they found that less than a third of businesses successfully made the transition to the second generation, and that number is cut in half again when the business is transitioned to the third generation. Unfortunately, these statistics don’t lie, and one of the biggest culprits is a lack of succession planning. For instance, Dad might want his oldest son to take on the family business when he’s gone, but the oldest son doesn’t know this and might have no interest in doing so. Or, because there is no formal plan in place, all four of Dad’s children fight over who gets to run the business (since they got equal shares in it through his Will), and after the lawsuits have concluded the business is in such bad shape the “winners” end up just deciding to shut it down.
To combat this confusion, a business operating agreement is essential, but often completely neglected. Without the operating agreement, when heirs decide to fight over the inheritance, a lot of these issues end up going to court -- and the legal fees eat up so much of the inheritance that the business just falls apart. No one wants to think about what will happen if they pass away or become incapacitated, but planning at the front end will ensure everything goes smoothly on the back end.
I hope this helps you understand the function and purpose of business planning a little better. Most importantly, I hope not to get many more calls from people wondering if we know a good business planning attorney. It’s official -- Stratton & Reynolds does business planning! Let us know if you have any questions or want to learn more about how we can help.