Proper transition planning creates a holistic, comprehensive, integrated plan that enables owners to one day monetize their business to provide financial fuel for another phase of life. At Business Transition Academy Inc., our definition of a Business Ownership Transition Plan™ offers a clear depiction of what we believe a transition plan is and accomplishes:
Business Ownership Transition Plan™ (BOTP™) is a comprehensive written document that outlines how and when the ownership of a business will be transferred to others, either internally or externally, in order to achieve the owner’s goals.
Our definition doesn’t specifically mention the monetization of the business but, rather, focuses on achieving the owner’s goals, which usually are comprised of both financial and non-financial aspects. So that owners’ goals can be achieved with little disruption from unexpected events, we strongly advocate for contingency planning.
While a transition plan is being created and once in place, an owner and his or her business need to be prepared for and protected from unplanned events; the untimely death or disability of the owner are the two most often considered and prepared for. Recognizing and preparing for these risks provides a level of certainty and additional security that the plan can be successfully completed and the owner’s largest asset protected. But what about other unexpected risks that could be looming and dramatically alter the future of the business and change the owner’s life forever by attacking and depleting his or her assets?
Most people are under the assumption that asset protection is for the wealthy and that lawsuits happen to other people. However, we live in an extremely litigious society where the potential cost of being involved in a lawsuit is staggering. According to the US Chamber of Commerce website:
The United States is the world leader in lawsuits, which cost the U.S. economy $264 billion per year—or about $850 per year for every man, woman and child in the United States. That hurts families, businesses, local communities—and America’s ability to compete in the global economy.
America has the world’s costliest legal system. As a percentage of our economy, U.S. legal liability costs are double those of the UK, three times higher than those in France and five times higher than those in Japan. Our nation’s litigation addiction harms America’s ability to compete for jobs and investment in a global economy.
In addition, most business owners naively believe they are not likely a lawsuit target since they have little or no product liability or they have adequate liability insurance coverage to protect them. Consider the situation below, which is also posted on the US Chamber of Commerce website about a company that had operated for 50 years and assumed they had little lawsuit exposure:
For nearly fifty years, gasoline can manufacturer Blitz USA was a pillar of the small town of Miami, Oklahoma. They produced 75 percent of all portable gas cans sold in the United States, and more than 100 families depended on Blitz for their livelihoods.
But then, a small group of plaintiffs’ lawyers put Blitz USA out of business. These trail lawyers concocted a legal theory that sought to blame Blitz for the handful of injuries caused by misuse of gas cans. The resulting lawsuits forced the company to close its doors. Over a hundred workers lost their jobs and benefits, and the town of Miami lost one of its most important employers—while the lawyers made millions. The factory has since reopened under foreign ownership but with fewer jobs.
Regardless of the outcome of a suit, there is tremendous cost to defending a lawsuit, no matter how unfounded. The damage done to the business’s reputation and the business disruption can cause the demise of a business and the depletion of owner’s wealth. You see these stories in the news every day. When a lawsuit is filed, a very broad net is cast to include everyone possible; even the vendors to a company can be named in a suit and have to provide a costly defense.
The list of potential asset erosion possibilities is tremendous and includes more than outlandish litigation. What about estate taxes, employee suits, ERISA, OSHA, divorce, environmental, creditor, directors, and officers, or any other multitude of potential risks? Whether valid or not, they can devastate wealth overnight. Many business owners feel secure since their business is incorporated or they are operating as an LLC, but one area often overlooked is, while these entities may provide protection from the business entity to the owner if properly handled, there may not be adequate protection to the business from acts of the owner.
At Business Transition Academy Inc., as part of our transition planning process, we work with the best asset protection advisors in the country who specialize in the field of asset protection. This is a complex field involving not just the correct titling of assets and insurance but also requires a comprehensive assessment of the business and personal assets for potential risk exposure. This helps to ensure that an owner and his or her business do not become a target in the first place, which is the best form of defense.
Transition planning provides peace of mind. The sooner owners take action, the sooner they gain peace of mind, knowing that what is most likely their largest illiquid asset is prepared, protected, and positioned for an ultimate eventual monetization. This secures their future and enables them to achieve their goals on their terms.
This article was syndicated from Business 2 Community: The Role Of Asset Protection In Transition Planning
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