Last month, in The Advisory titled, “THE HIGH PRICE OF NOT OBTAINING ADVICE”, The Center wrote on common omissions many businesses endure. Among the problems were a lack of tax strategy, a lack of business succession planning, and a lack of formalities and lawsuit protection. In day to day operations, this may not seem like much of a problem, but as we concluded last month, these problems can or will always be fatal to even the best run company.
There are ways to solve many problems companies face. These solutions should be viewed as part of an ongoing relationship with a professional.
Cure for No Tax Strategy
Many companies don’t have a tax strategy, and while it may not seem like a big deal, it is. Their tax strategy is simply to pay as few taxes as they have to despite the tax consequences and lost opportunities with the money. This is no way to deal with the tax law.
To begin the cure, the best way to deal with a lack of a tax strategy is quite simply to have your previous years’ tax returns reviewed by a professional who specializes in tax strategies.
If your business is not taking available tax credits or deductions, that person will be able to spot the problem and recommend action. Often times, unused credits, deductions, and even mistakes come to light. When they are applied the reduction in tax liability is substantial. Once completed, at least an annual review should be implemented.
Cure for No Business Succession Plan
As expounded upon last month, most businesses do not have a good business succession plan or have even started on a business succession plan at all. Let’s all remember, life is finite! A business will typically go beyond a human lifespan, humans only get one lifespan. To those you leave behind, your business can be a blessing, or a curse.
The easiest way to start, not finalize, a business succession plan is with a will. While any attorney can write a will for a client, it is best to choose one with a business succession and valuation background. In addition to a will, a valuation and successors should be added.
Cure for No Formalities
Some businesses have no formalities such as a corporate record book or even a formal entity. This usually does not disrupt day to day operations, but it’s a risky proposition for those in business. Lawsuits happen all day and every day. If you find yourself named in a lawsuit, the absolutely worst position to be in is operating a business without a valid business structure to shield you and your family from personal liability. The best course of action to cure this is to create a proper legal entity in which to do business. The second important step is (if not already done), update your corporate record books.
Incorporating or organizing is absolutely critical to shielding yourself from personal liability. Without a formal entity, personal assets are fair game for a creditor or litigant to attach. Equally important, record books must be up to date. Without a valid corporate record book, the formal entity becomes useless. It is therefore important to have an entity with an up to date corporate record book.
In conclusion, it is important you have the right advice for your situation. Paying excessive taxes, not having a business succession plan, and not having a formal business structure is never good business. Sooner or later, the Grim Reaper, a plaintiff’s attorney, or the government catches up with you. Having a strategy and a written plan will help avoid problems for you and your family that inevitably all of us will face.
It is recommended that the steps in this article be a start to your planning. If you start developing a plan or course of action, you will be better prepared to deal with future events.
This concludes our two part series regarding the need that businesses have to secure themselves in the legal and tax environment of business. If you would like a copy of the first part, it is available either online or through my office. Please feel free to e-mail Marcus at firstname.lastname@example.org or call him at (618) 997-3436.
By: Dr. Bart Basi at the Center for Financial, Legal and Tax Planning for Transworld M&A Advisors