Contingency planning to protect your business, your assets and your family
At some point in the life of a business, the unexpected happens. Protecting against a negative event or situation is essential for your business to continue to survive and thrive. Establishing the right infrastructure will ensure you are ready to meet a dramatic event head on.
So, how do you protect the financial health of your business should a disruptive event occur? Every company should have a strategy – contingency plan – that incorporates the steps it will take in the event of a changing condition. To remain successful, you must be able to effectively and quickly respond to a disruptive event.
Consider the following steps you can take to protect your business, your assets and your family.
Most businesses that are LLC or S-Corp entities are required to make quarterly estimated tax payments, yet surprisingly many fail to recognize this IRS requirement. Income you derive from your business must be paid on April 15, June 15 , September 15 and January 15. Failing to make the required quarterly tax payments can place you and your business at risk. It’s important that you plan accordingly and set aside money every month to ensure you protect your cash flow.
Good Governance Practices
Whether you’re a corporation or a partnership, you will want to ensure you are not co-mingling your personal assets with that of the company’s. This is critical in the event of a lawsuit where protecting your personal assets and family’s welfare is so important.
Also, it is important to properly document all board meetings, steps taken to adhere to operating agreements and your compliance with all rules established to run your organization. This documentation is essential to protect you and the very existence of your business. It should be stored electronically with a backup.
A “source document” is the original record that reflects details of a transaction that are entered into your accounting system. Examples of source documents and the transactions they represent can be bank statements, cash register tape, packing slips, credit card receipts, supplier invoices, etc.
There are many reasons why source documents must be retained. Some examples, include an IRS audit, a bank or insurance company audit or providing them to a buyer if you sell your business. We recommend retaining this information for a period of three to five years and, in the case of any IRS documents – tax returns, etc. – five to seven years.
These are prudent business practices that in the end will make your business safer and more valuable.
What happens when you and your partner decide you no longer want to work together? Or your partner gets a divorce leaving you potentially in business with his ex-spouse? Or what happens when you or partner dies? These events happen every day in the small business world.
Contingency planning through the use and implementation of a buy-sell agreement can save you and your business when a disruption occurs. Also known as a buy-out agreement, a buy-sell agreement is a legally binding contract between co-owners of a business. These agreements are often created at the time the business is formed. It is not uncommon for the agreement to be filed away until such time as a buy-out is triggered.
There are several events that can trigger a disruption in your business. Each should be addressed when drafting a buy-sell agreement. More information about buy-sell agreements is covered in further detail in our next blog.
Let’s guide your success . . . together. For a free assessment, contact us.
Go to TGG University to learn more about “Preparing for the Unexpected.” Watch Video>
• Corporate Governance Watch Video>
• Business Documentation Watch Video>
• Tax Planning Watch Video>
• Buy-Sell Agreements Watch Video>
• Buy-Sell Agreement—Sole Owner Watch Video>
• Buy-Sell Agreement—Partnership Watch Video>
• Buy-Sell Agreement—Multiple Owners Watch Video>
• Buy-Sell Agreement—Disability Watch Video>
• Buy-Sell Agreement—Divorce Watch Video>
• Buy-Sell Agreement—Dissolution Watch Video>