Most business people work 100,000 hours in their career. Spending 10 of them to protect the results of the other 99,990 seems like time well spent.
Most people who own a successful business did it by working when they would rather have been playing, by doing without so the business could have more money to grow, by being highly stressed most of the time, by imperiling family and friend relationships, and by taking all-in risks.
Once successful, business people want to keep what they have made. It is what they have to show for their lifetime’s work. There are routine things to address.
- Carry adequate insurance. That includes fire, theft, public liability, auto, and personal disability. Own life insurance to buy out partners, pay off loans or provide money to pay professional managers until the business sells. No one ever dies when everything is done. Money solves half-finished problems.
- Auto insurance can be problematic. It would be good to know how much someone else can collect from you. I know of two business owners whose children, while driving Dad’s car, were involved in accidents where the resulting claim exceeded the policy limits. Take the most coverage they will sell you and/or isolate ownership of vehicles.
- Carry “Director and Officers” liability insurance. As a director or an officer of a business, you are personally responsible for many things you do not normally think about. Things from which the corporate form of organization will not protect you. Things like unremitted payroll deductions or sales tax, environmental degradation, workplace conditions including various forms of harassment, firing decisions, investment management of employee retirement plans and more. Once you have the insurance make sure you understand what it does not cover. Many do not cover punitive damages.
- Be cautious serving on the boards of other businesses, charities or community organizations. The same director liabilities that apply in your own business also apply in these. Sometimes there is more risk. For example, release of private information.
- Use a holding company. Operating companies have commercial risk. Take profits through operating companies to the holding company. Do it every year, not just when there might be a problem brewing.
- Secure advances and loans to your business. If you take money out of the operating business or the holding company, it never goes back in without full security. You may need to postpone to the bank or other secured lenders, but you have protected yourself as far as possible. In Ontario, a general security agreement registered under PPSA. Losing money after you have earned it means that you need to make the same money twice to keep it once. Earn twice, keep once is a weak tactic.
- Creditor Proof Retirement. Your retirement savings plans, should be immune to creditor claims. To accomplish that, you will need to use a “segregated fund” or an Individual Pension Plan. (IPP) IPP’s also offer the ability to contribute more money than you can put into a Registered Retirement Savings Plan.
- Other creditor proof assets. Investments outside your businesses can be creditor proof in some cases. Segregated funds and life insurance cash values are generally not subject to claims of creditors if you have created them properly. There are technical issues. Talk to your adviser.
Making money is not so easy that losing it carelessly is permitted. Review your defenses.
Don Shaughnessy arranges life insurance for people who understand the value of a life insured estate. He can be reached at The Protectors Group, a large insurance, employee benefits, and investment agency in Peterborough, Ontario. In previous careers, he has been a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business.
Please be in touch if I can help you. firstname.lastname@example.org 866-285-7772