Tax Planning: Don’t Tip the Treasury, Please!
Avoid costly tax mistakes. Learn how proactive planning can help you keep more of your money and stop overpaying the IRS.
Author: Brandon Jordan, CFP®, CHFC®, CEPA®, CVGA®, CLU®, MSA, EA | CEO of Impact Advisors Group
If we desire to improve the odds that our business wins long term and achieves a meaningful value, it’s essential that we build up our defense against threats, both internal and external. This series focuses on the internal threats, what they are, what IMPACT they have, and how to mitigate exposure to each of them. The top internal threats are as follows:
3. Unplanned Events
(a) Death
(b) Disability
(c) Divorce
(d) Distress
(e) Disagreement
4. Supplier / Vendor Concentration
5. Customer Concentration
While business owners cannot lose focus on the day to day operations of the business, it’s important to realize that each of the Five D’s has the potential to cause a business to lay off employees, fall behind on their payables/payroll, violate their loan covenants, or even close its doors. They are more dangerous to business’ success and viability than most realize.
Death
The loss of a leader or owner can leave a leadership void and uncertainty in its wake. In addition to the obvious issues when a leader/owner dies, many business owners fail to realize the impact that a lack of planning for this threat can have with their silent business partner: the Internal Revenue Service. The IRS will require a valuation of the business and, if the value exceeds the state and/or federal exemption amount, estate taxes will be due! Attached, you’ll find a document that uses a bit of satire to illustrate this often overlooked point. Enjoy!
Disability
A sudden illness or injury that sidelines a key player or owner could leave the business very vulnerable. Can the business afford to hire a replacement and continue to pay the business owner to support the owner’s family? This drain on cash flow could result in the business “growing broke.”
Divorce
A messy split can lead to divided assets and loss of control, especially if both spouses are involved in the business. What happens IF the ex-spouse gets an ownership interest and/or a board vote? Are two ex-spouses likely to align on what’s best for the business? Future board meetings could become rather unpredictable, ineffective, and unenjoyable.
Distress
Financial pressures or market disruptions that sneak up unexpectedly, straining the business. How will the business be impacted if/when suppliers place restrictions on credit facilities (e.g. require cash on delivery, shorten payment timelines, etc.). How will the business be impacted if lenders cancel or restrict Lines of Credit?
Disagreement
Conflicts between business partners or stakeholders, while common, can easily escalate, destabilizing operations. Patrick Lencioni in his book “The Five Dysfunctions of a Team” says it best: the presence of conflict does not mean the absence of harmony; nor does the presence of harmony mean the absence of conflict. Is there a system/process in place to help facilitate and resolve disagreements and conflict in a productive fashion?
Avoid costly tax mistakes. Learn how proactive planning can help you keep more of your money and stop overpaying the IRS.
Warren Buffett recently announced he will be stepping down as CEO of Berkshire Hathaway at the end of the year.
Smart investing starts with a plan. Learn why asset allocation, not stock picking, drives long-term portfolio performance.
80% of a company’s results are often created by 20% of their team, but what happens when those key employees leave?