Business Spring Cleaning 101
In the Spring, we think of renewal or rebirth. The earth starts get green again, flowers start to bloom, and everything starts to ‘wake up’. Oftentimes, we start cleaning our homes, preparing our patios, and getting rid of the dreary winter clutter in our lives. One of the biggest things that get overlooked as business owners, is making sure our business is in order and up-to-date. We forget that our biggest asset should also be cleaned, prepared, and de-cluttered too. It is time to take an inventory to make sure your business is protected and always up to par. Here are the major areas that need to be reviewed:
The Corporate Veil
Is there exposure of lifting your ‘corporate veil’? A big reason a business owner chooses to form a corporation or limited liability company (LLC) is so that they won't be held personally liable for debts should the business be unable to pay its creditors. But sometimes courts will hold an LLC or corporation's owners, members, and shareholders personally liable for business debts. When this happens it's called "piercing the corporate veil." Another way that this can happen is by comingling bank accounts. Many small business owners comingle their personal bank accounts with their business expenses and vice-versa.
It is imperative to keep your business and personal assets very separate, as any of your creditors can bring your personal assets into a debt situation, including the IRS. You need to maintain a separate bank account for your business; use the company name on all documents; title any property in the name of the company. If there was any wrongdoing or fraud, the above will not matter, as owners will be held accountable.
Legal Contracts
Do you do everything on a handshake? Protect your assets by having lease agreements for your rentals, placing property and equipment titles in the company name, having subcontractor agreements and contracts on every project, not relying on emails or verbal agreements for terms, and never hiring people to work under the table by paying them in cash. Only use licensed, bonded, and/or insured professionals to help you in your business. There is merit to having everything in writing. Make sure your contracts are up-to-date. Find a good business attorney to help you with these documents.
Insurance Matters
Do you have the right policies? Insurance is an important part of your life and business and should be reviewed annually. Insurance gives you the ability to take care of an incident in your business. There are many types of insurance to consider depending on the type of business you have. Most common are: professional liability, general umbrella, and workers compensation. Also, from a personal standpoint, it helps to review your health, auto, and homeowners policies each year.
Emergency Fund
What if the world shut down again? Keep at least 3 month’s worth of expenses set aside in a liquid account to be able to get back on your feet. But, even if the world kept going, this fund is a great tool to manage unexpected bills such as medical costs or to repair your home or car. Set up auto drafts from your checking account into a savings account. This way you don’t even see the money and you won’t spend it.
Retirement Living
Do you have a plan for your financial future? Find a good financial advisor. Federal law provides asset protection to ERISA qualified retirement plans (like 401k plans), and up to $1,362,800 in assets in a non-ERISA qualified plan (like IRAs)in the event of bankruptcy. This protection cap is adjusted every three years for inflation and will adjust again on April 1, 2022.This is a great way to sock away money that you will not need immediately. Some states provide even more protection to IRAs. Retirement accounts are excellent vehicles to protect long-term savings, and provide substantial tax benefits, but need to be understood and used with due care.
An Estate Plan
What will happen to your family if you were no longer living? No one ever wants to go there, but it is imperative to think about this when we do not know what tomorrow brings. You don’t need to be a millionaire to have an estate plan. This becomes most important when you become a parent and even more so when you own a business. Besides a will, there are many other important documents such as a living will (which lays out your wishes for things like life support) and health care proxy (which appoints someone to make decisions on your behalf if a medical issue leaves you unable to do so yourself).
Technology Gameplan
More and more viruses are hitting databases and the world wide web. Identity theft and confidential data are becoming easier to hack into, and most of us have experienced this in one way or another. The pandemic caused all kinds of issues with scammers. For example, If you received a PPP loan, your record was made public and you will be bombarded with scam email. Don’t respond to anything that isn’t coming from a source you know, and do not click on any links. Make sure that your technology is protected with firewalls, anti-viral software, and disaster recovery backup.
Record Retention
As a general rule, for tax returns: Hold onto documents that support income, deductions, and credits for at least three years after the tax-filing deadline. There are exceptions for longer periods in cases where taxpayers neglect to report income, have worthless securities, or if you pay taxes to a foreign government. Shred any documents that you no longer need to keep.
It is easy to neglect, or put on the backburner, these things because they are not necessarily a priority in our day to day lives. But know, that your life will be smoother if you intentionally care for your business affairs as you do your home and your life.
