Essentials Every Small Business Owner Should Consider

“Protect the business, protect the family.”

The above quote is the mission of every small  business owner. Especially when the family and the business are one and the same, which is often the case for small businesses. This issue deals with several essential things every small business owner should consider to ensure the business and, by extension, the family are “protected.”

Prepare or Update your Will and Testament: 
Repeat after me, everyone needs a Last Will & Testament. Everyone. Regardless of business type, asset value,  net worth, or family size, a Will is a must.

A Will is a legally binding document, and it directs the way your property is dispersed for things such as who inherits specific assets, who will be the guardian of your underage children, who will carry out your wishes (executor), who will have power-of-attorney, just to name a few.

For the small business owner, if your ownership interest or assets aren’t required to be sold to the business partner (see Business Continuation Plan), the Will defines which family-member(s) receive the ownership interest(s). Not identifying these crucial things has disrupted, if not outright devastated, many small business operations.

Warning: If you don’t have a Will outlining your wishes, your state’s law will do it for you, and it can be long, painful, and costly.

Finally, if you have a Will, make sure it is updated to reflect your latest wishes. That includes a review of new business ventures, property, family members, marital status, personal assets, powers-of-attorney, and executor.

Business Continuation Plan:
This is another essential, especially if there are others, family or otherwise, in the business. This document defines what happens to you and your business partner’s ownership interest in case of events such as death, retirement, divorce, bankruptcy, or exiting the business. Maybe more importantly, it can be used to define the succession of leadership when one of the aforementioned events occur.

If a Will is essential to the individual, a Business Continuation Plan is essential to the business. It is extremely difficult to handle the issues of business ownership succession after-the-fact.

Buy-Sell (Stock Purchase) Agreements:
Another essential to consider is a buy-sell agreement.  These are commonly included as part of a business continuation plan.  These agreements are a critical tool in providing protection to the small business as well as the business owners and their families.

How does a buy-sell agreement “protect”? These agreements typically provide instructions that prevent an ownership interest from being sold or transferred to outside, or non-family, interests without the other owners approval.  It can also define who gets first crack at purchasing or redeeming the interest while defining ahead of time the method to be used to determine ownership value.

Funding A Buy-Sell Agreement:
Another essential to consider is funding. To protect the cash of the business and the owners, buy-sell agreements are often financed with company-funded life insurance where the owner or the business entity is the beneficiary with a stipulation that the proceeds be used to buy-back a deceased owner’s interest.

FINAL NOTE: These are complex legal and tax matters with broad implications. Legal counsel should always be sought in handling these matters. 

The information contained herein is general in nature and is not intended as legal, accounting or tax advice or opinion as provided by National Write Your Congressman. The reader should seek professional guidance prior to taking any action based upon this information. Mt. Pleasant Agency, Inc. – Central Insurance shall have no obligation to inform the reader of any changes in tax laws or other which may affect the information provided.

*Content provided courtesy of National Write Your Congressman