Insurance, savings and fingers crossed: These are the three elements entrepreneurs use to protect their business.
Why doesn’t it feel like enough? Because it isn’t.
When you build and nurture something over the years, you realize just how fragile it can be. And when your family's success and prosperity depends on how long you can sustain your business, that fragility is an issue. Insurance and savings can keep a majority of your worries at bay, but even the most well-protected businesses can be exposed to risk if you don’t prepare core personal documents.
These documents -- last will and testament, living trust, financial power of attorney and others -- get ignored if young entrepreneurs fail to see the value they represent. As time goes by and your business grows, having these pieces in place becomes more than just important. It becomes essential.
What most entrepreneurs ignore.
Bloomwell, which provides a bundle of personal and family documents, found some startling facts when it conducted a survey of more than 500 entrepreneurs:
80 percent didn't have a financial power of attorney in place.
Just 24 percent had a last will and testament.
Only 13 percent had a living trust.
And 65 percent of entrepreneurs had nothing at all.
The solution: estate planning.
While insurance can cover you for unforeseen events like medical emergencies, only estate planning prepares your company for the absolute worst-case scenarios.
Related: 4 Reasons Why You Might Need a Trust
Call it your Big Plan B -- your succession plan. At the core of this plan is a simple question: What happens when you’re no longer around, whether that’s through early retirement, incapacitation or death? Your succession plan even can discuss what to do if you encounter financial hardship or transfer your ownership to someone else.
It might not be pleasant to think about, but succession planning doesn’t have to be a long, dragged-out process, either. It can be as simple as you want to make it. The most important issue here is putting a plan to paper and defining “succession” as you see it.
Bloomwell and other platforms let families take charge of preparing their estate documents without necessarily costing a fortune.
What you need.
Recent reports pegged Apple’s cash reserves at nearly $250 billion. Most entrepreneurs don't have that kind of money lying around, but the logic is simple: Cash savings help protect you from unforeseen financial events. Apple is well-protected in this case.
As a business owner, you also have something else to think about: What happens if you have unforeseen medical events that hamper your ability to do business? That becomes more than just a financial question. It becomes a question of your company's survival. That’s something Apple doesn’t have to worry about. But you do.
Here are the three essential legal documents entrepreneurs should consider when drafting an estate plan.
1. Financial power of attorney.
You’re the person in charge. All decisions in your company must be run by you -- until you need surgery that puts you out of commission for a few months.
The questions start piling up. Who pays the rent? Who does business with your clients? Who accesses your bank accounts, and how?
Financial power of attorney (FPOA) allows you to transfer authority to another. The FPOA will assign an “agent” to oversee your funds and make financial decisions on your behalf. This includes business operations, tax issues, stock transactions, insurance and even claims and litigation.
2. Living trust.
You put your life's sweat into your business. Then you die unexpectedly. What happens next? No one knows, because you didn't plan. Your property and other assets go through probate and someone else makes decisions about what you worked so hard to build.
A living trust is the main tool in your estate-planning arsenal. Holding property in a trust ensures it will go to a trustee rather than through the court system.
3. Last will and testament.
This simple document describes your intentions for your property and debt (and perhaps even your burial wishes). Essentially, it’s the last “say” you’ll have in any decisions regarding your property and your life.
Through a will, you can designate an executor to ensure your will's terms are carried out. This should be someone you trust implicitly. Business owners are entrusting their executors with not only their family's well-being but their livelihood, too. It’s an important decision that requires someone very close to you.
Update your Plan B today.
Tomorrow never is guaranteed. Drafting a will, a FPOA and a living trust can feel uncomfortable. But the rewards are significant. For the hour or two you'll spend, you'll gain a sense of security that goes beyond even insurance and savings accounts. You'll have tackled what you want to happen if worst comes to worst.
Business owners (and their families) simply are happier once this basic task is done. You can't buy this peace of mind. But you can earn it by taking action for yourself and those you love.