If you ask around, you will discover most owners of businesses, especially, small and medium enterprises, have ignored the need to do estate planning. They are so busy establishing and growing the businesses that they have not thought about who will manage them after they pass. According to Forbes, estate planning allows you to have better control over your finances and reduce your tax liability. Some of the most important reasons why business owners should find the time to do estate planning:
You and Your Family Depend On Your Business Income
For most business owners, equity in their business constitutes a significant part of their net worth. In many cases, it could be 75-80%. Without any estate planning, the value of this equity may plunge if the owner unexpectedly dies or becomes incapacitated. Loss of business equity may have serious repercussions on the family finances, even if you have purchased long-term disability insurance. If you do small business estate planning, you can preserve the equity of your business and your family’s net worth better in case something happens to you.
Your Business May Not Survive You
If you do not make a plan regarding who will take over the reins of the business in your absence, likely, your business will also fold up after you pass. You need to make a formal organization chart that specifies who will do what if something happens to you. You will also need to shore up the management of your business with people competent enough to carry on the business.
It is important to keep in mind that it can be difficult for employees to do everything as adeptly as you, and they might not be ready, able, or even willing to take on the added responsibility ofr Estate Planning. You must also remember if your business fails, employees will lose their livelihood, customers will find themselves stranded, and there could be a negative impact on the community. A robust succession plan will ensure that the business will continue as usual.
Allows Smarter Debt Management
It is common for small business owners to rely on lines of credit for funding business operations. While some of the debt may have been secured using the company’s assets. Many other loans could be unsecured and taken by the owners personally. It is not unusual for the terms of credit lines to specify. That the outstanding debt will have to be repaid in case of the owner’s demise. However, when the business situation may be precarious. Because of the owner’s passing, it may not be possible to repay the loans. A good succession plan will contain details of the funds or other assets to be liquidated for repaying the debt.
In addition to the above benefits, estate planning also makes it possible for you. To specify what is to be with the business after you pass. It also allows for efficient tax planning, without which your heirs may be burden with huge taxes. Estate planning is also a good opportunity for promoting the values you hold dear. By setting up trusts and appointing trustees to oversee the best use of the money in keeping with your directions.