We stated in our first blog post in the series, “Ten Mistakes Businesses Make (and How to Avoid Them),” that caring for the corporate entity is important because it defines the degree of liability you may have if you fail to honor the entity. In our second blog post, we will expand upon this idea to discuss what is in the company that you have created.
Like many of us that own and operate businesses, we may or may not think about them as separate entities or personas. Although your company may be your “pride and joy,” as managers of companies you may find yourself 
immersed in the day-to-day issues, putting out fires, and/or singlehandedly implementing your annual plan. This is the proverbial “working in your business, not on your business” trap. You may be the most diligent person in executing a plan and running down the details of your business, but longer-term matters often languish. You put them off unresolved, knowing full well the importance and the ramifications of delay.
Truth be told, you own things personally and your business owns things. And even though all of those things may be insured against loss, how they are taxed and accounted for in your operation, upon sale or, even more significantly, upon your death, is a completely different matter. This is of critical concern.
So often, personal estate planning practices intersect with issues related to your business. To avoid the common mistake that many business owners make of failing to protect their assets, ask yourself the following questions:
What is in your company?
You are! Who are you and how is your health? What responsibilities do you have to your family or siblings or business partners? There are many people in your life, all significant and all with certain degrees of importance – family, employees, partners, customers, etc. And if you are a family business, this has an even greater significance.
What is your ownership interest in the company?
This is the value of the company, (always something that is debated between buyers and sellers), but until you get to the point of having a saleable business, how do you protect the value of your company?
What do you control?
Management + percent of ownership interest = control. Control is important for obvious reasons. This is determinedin your legal agreements. Do you have agreements that govern your company and its structure, and ultimately,
succession and sale?
What do you have?
You may own a house or commercial property, or the business may own the building it operates out of, or a separate entity may own the building and a partner may own the business. The scenarios are endless. But here are a few starting rules:
- Rule Number 1: Keep things separate: Books, records, bank accounts; do not commingle!!! As for residential real estate, use a trust if there is no mortgage and file a Declaration of Homestead, which provides for up to $500,000 of protection against creditors. It is a simple legal document to file and every business owner should have this.
- Rule Number 2: Evaluate the legal tools and products that provide protection. Insurance for property and casualty, life and disability is critical and an easy tool to create value that covers business operations in a sudden transition event. While banks and financial institutions thoroughly evaluate your financial ability, they typically don’t ask about life insurance, but rather what happens in the event of death or disability. Trusts are also a tool to create “pockets” in your portfolio, which will keep assets separate from each other enough to preserve the assets and guard against commingling.
- Rule Number 3: When in trouble, get help to get out of trouble. People that have suffered a bankruptcy or other credit-damaging event in their business life sometimes conjure up ideas that they can set up a company and put other people in charge – siblings, children or spouse – as a way to protect their assets in the future. Be careful – read the fine print! The delay generally leads to people doing “fraudulent transfers,” which are reversible transfers that courts can take back when someone attempts to transfer an asset prior to a catastrophic financial event.
- Rule Number 4: Create an estate plan. This is not related to business, but people that own their own businesses must have their personal estate plan in order so that any business-related issues can be resolved in the case of their death.
Shameless Plug
Failing to protect your assets is an unforgivable mistake that business owners make. Our firm regularly helps smallbusiness owners with these issues through a fixed-fee legal service called My Outside General Counsel. Through this 
service, we provide you with all the benefits of having in-house legal counsel without the expense. This helps to create cost certainty for smaller businesses looking to manage the myriad legal requirements surrounding general corporate, employment and regulatory law. We can help you by evaluating your assets and developing business and estate plans that will protect you, your family and your company.
Regardless of whom you choose to assist you in this matter, don’t delay. Take steps to protect your assets today. Don’t be “that guy.”
Our next blog post in our series, “Ten Mistakes Businesses Make (and How to Avoid Them),” will focus on “Bad Management.”