Many small business owners and creative entrepreneurs invest in insurance to safeguard their business. Some stash cash in a savings account hoping they won’t need to dip into it during a financial emergency, while others may have no financial strategy, instead holding their breath and hoping everything will work out for the best. While it is imperative for anyone to have a safety net of sorts when planning for their estate, having official documents is non-negotiable for entrepreneurs looking to protect their business assets in addition to their personal possessions. Emergencies are inevitable, and when coupled with the instability that comes with growing and sustaining a business, even the most seemingly well thought-out preventative measures can fail if business owners do not have the essential personal documents put into place properly.
A living trust, last will and testament and financial power of attorney are among the top priorities that every entrepreneur should have in place, although not all do. A study conducted by Bloomwell that examined 500 entrepreneurs revealed staggering numbers, which supports that some have very little, if anything, in place for their future. For instance, 87 percent did not have a living trust, 80 percent did not have an active financial power of attorney and 76 percent did not have a last will and testament. An overwhelming 65 percent had none of these.
The simplest way to ensure lasting security of a business is through estate planning. Unlike basic business insurance, estate planning goes a step beyond to organize a company and its assets for unforeseen scenarios. Think of it as a backup plan to take care of an estate once an entrepreneur has retired or passed away. This plan covers exactly how a business owner wants their monies handled should the business be faced with financial difficulties or a need to transfer business ownership to another individual. Also referred to as a succession plan, implementing this type of business protection is an affordable and straightforward process. There are countless resources to turn to for assistance with preparing these documents. Entrepreneurs in the process of drafting their estate plan should be sure to take the proper steps to assure security.
Financial power of attorney
A financial power of attorney (FPOA) is designated by an entrepreneur to allow for someone to serve as a decision-maker for matters related to a company should a business owner be unable to do so. The FPOA is responsible for concerns related to who will conduct business with clients and who is permitted to access business bank accounts, for instance. This person is also able to assign an agent to look after an entrepreneur’s funds and handle any financial decisions on behalf of the entrepreneur, including matters related to insurance, litigation, business operations, stock transactions and taxes.
Living trust
Business owners devote an unwavering amount of money, time and heart into their companies, which is why having a living trust is essential to protecting the property and the wealth that goes along with it. Failing to plan for unexpected circumstances can result in loss of property and assets. If there is one estate-planning document that is most important, it is a living trust.
Last will and testament
This document includes your wishes for everything from how your property and debt be handled to your burial wishes. An executor chosen by the entrepreneur will help ensure that the terms and conditions of the will are obeyed, which is why it is crucial that the executor be an individual well-trusted by the business owner. Keep in mind that while the main focus may be on your business, your last will and testament will ultimately affect your family’s livelihood as well.
Everyone, whether or not they are an entrepreneur, should remember that no one can predict what the future may hold. Taking the necessary steps to protect and plan for a business's future reaps substantial rewards in terms of comfort and security for not only the business owner, but their family and actual business too. Do not wait until an unfortunate situation strikes. Take the steps early to prevent those worst-case scenarios now.
This article was written by Jessica Wasik for Small Business Pulse