Business Planning 


The Business of Life - Life is Business

Whether they know it or not, most people have a business of some kind. Those who don't know they have a business, pay more in taxes than is required of them. When left to random mutations and natural selection, business tends to devolve into sub-optimal forms. Businesses structured deliberately through intelligent design perform better and last longer. It is not enough to "have" a business. How the business is put together the legally structured makes all the difference in the world for tax efficiency, asset protection, profitability, governance, and succession.

Get the most out of your business:


The Sole Proprietor Trap

A sole proprietorship is the easiest business to set up, which is why it is the most common. It also has the highest risk of liability, pays the most in taxes, and is least likely to be sustainable. While a sole proprietor may work well as a business incubator to try new ideas, it is a stepping stone, not a landing place.

The Single Member LLC Land Mine

A single member, member managed LLC is easy to establish and the most common type of business "entity". Contrary to widely held beliefs, such an entity does NOT protect assets. With a few key exceptions, it is also not highly effective for tax planning. While a step in the right direction, such an LLC is best used as a temporary stepping stone on the way to more effective and vigorous entities.

Rick Management - Holding Assets

A good fence keeps your dog in and keeps the neighbors' dog out. For a business entity to actually protect, it must contain risk (your dog stays in) and exclude risk (the neighbors dog stays out). When the dogs go where they're not supposed to, it's called "piercing the corporate veil." Corporations must meet certain compliance obligations to keep the dogs in their place. Likewise, LLC's must be structured as multi-member, manager managed to both contain and exclude risk.

Operations - Running the Show

In most instances, it is best for the operating business and the entity that owns the assets to be different entities.

Tax Efficiency - Choice of Entity

Entities can be taxed in a variety of ways: disregarded (flow through), C-Corp S-Corp, Partnership, Tax Exempt. There is no one-size-fits-all single best structure. Simple start-ups may work best with more than one such structure, depending on the details. With growth and success, the best value will be found in having multiple entities, each taxed differently. Designing a structure that optimizes risk management, tax efficiency, operational ease, and long term succession requires a multi-disciplinary skill set.

Integrated Planning

Business entities do not arise in a vacuum. There are aways people and other assets and issues involved. Some of the biggest and most expensive challenges arise when the estate plan and the business plan are disconnected. A good business plan will look beyond this year and this generation. Part of a multi-generational perspective is taking into consideration and planning for how the family business or the family farm is going to flow over multiple generations.

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