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Succession Planning & Asset Protection - Part 3

The Importance of Good Advice in Running and Maintaining a Successful Family Business

An Ounce of Prevention is Worth a Pound Of Cure

image of a bust of Benjamin Franklin with caption - An Ounce of Prevention is Worth a Pound of CureIntroduction

In our previous article – Part 2 of Succession Planning & Asset Protection, we focused on matters such as:

  • Assessing Current and Future Leadership Needs
  • Identifying Potential Successors and Their Development
  • Establishing a Clear Business Transition Timeline
  • Communicating the Succession Plan to Stakeholders, and
  • Implementing and Monitoring the Succession Plan

Moving on from that discussion – if you run a family business, it’s likely that your children or other family members are interested in taking over. You may be concerned about handing off the company to them or want to know how they can make it successful. Alternatively, you may wish to have an exit strategy that focuses on the sale of the business at some future time.

Either way, you need to secure the business with appropriate succession planning and asset protection strategies. By the way, this also applies to major personal assets such as the family home, art collections, jewellery and the like.

With regard to addressing this latter asset protection factor, stay tuned for our next article “Protecting Your Family Business and Home”.

Definition and Significance of Asset Protection

Asset protection is a broad term that covers many different types of legal and financial tools. It’s important to protect your assets from both external risks, as well as internal risks.

External risks are things like lawsuits and creditors who want to take your money away from you. Internal risks are things such as fraud or other misconduct by employees or family members who could cost the company money or tarnish its reputation if they aren’t stopped in time.

The first step toward effective asset protection is understanding what it means for something (or someone) to be “protected” in this context.

When we say that someone is “protected,” we mean that they have some kind of legal right against others’ attempts at taking away their property without permission – whether that means:

 

Types of Assets Requiring Protection in a Family Business Context

There are many types of assets requiring protection in a family business context. Moreover, the overall financial health, protection and preservation of all types of assets is critical for any successful business, including:

  • Personal assets
  • Business assets
  • Intellectual property (IP)
  • Employee benefits

Risks and Threats to Business Assets

There are many potential risks and threats to business assets. The most obvious are those that stem from common accidents or events, such as fires, flooding, cyclones and even the occasional earthquake. But there are also less obvious threats that you should be aware of as well, including:

  • Poor advice from a lawyer or other adviser who does not understand your industry or knows little about asset protection strategies. Be aware that this can lead to mistakes in structuring your company that may expose its owners personally if things go wrong later on down the road (e.g., bankruptcy).
  • Poor decisions made by those running the company without proper guidance. Many owners have been successful at starting up businesses but fail because they don’t know how best protect themselves financially when making key decisions regarding their companies’ future success (e.g., buying real estate, day-to-day financial management – including debt management).

Legal and Financial Tools for Asset Protection

Such tools are many and varied however, we recommend that the following ones be given primary consideration – under advice from your specialist adviser, of course:

The right tools for you will depend on your unique situation and goals. However, it’s important not to overlook this crucial area if you want to ensure the long-term success of your family business.

Key Considerations for Implementing Asset Protection Strategies

Never underestimate the importance of receiving good advice in running and maintaining a successful family business.

If you’re the owner of a small or medium-sized enterprise (SME), then you’re probably aware that there are many risks associated with running it. One of the most significant is the threat of legal action against your company by creditors and other parties who have suffered loss because of your actions or indeed – inaction.

To protect yourself from this risk, it pays to act before any incident occurs rather than waiting until after something goes wrong (the age-old Benjamin Franklin adage of An ounce of prevention is worth a pound of cure). This is where having an asset protection strategy comes in handy as it helps to guarantee that if someone brings legal action against your business, they won’t be able to recover much money from its assets because those will have been properly protected through careful planning beforehand.

Real-World Examples Highlighting the Substance of Asset Protection

There are a lot of reasons to protect your assets, and it’s paramount that you do so. Here are some real-world examples:

Protecting your assets from the outside. Assets can be protected from the outside by making sure that they’re not visible, or at least that their value isn’t obvious.

For instance, if you own a business with valuable intellectual property (IP), such as patents or trademarks for products or services offered by your company, it’s crucial that those assets aren’t publicly available on the internet where anyone could see them and potentially steal them.

This can be done through careful management of social media accounts used by employees of the company who have access to these documents. Such as – by only allowing employees who need access for work purposes access to certain documents stored in shared cloud storage systems like Google Drive/Gmail etc., rather than posting links on Facebook where anyone could find them later down the line when looking up information about competitors’ businesses online! An object lesson here is to have this factor included in an employee’s initial employment contract.

It is Vital to Protect Your Assets from Both External and Internal risks

A good example of an external risk is a lawsuit or a government investigation. On the other hand, fraud committed by an employee is an instance of an internal risk.

To protect yourself against these different types of risks and their consequences, it’s imperative that you have the right advice at hand and understand how best to use it in your business.

Summary

In conclusion, the bottom line is that you must protect your assets from both external risks, as well as internal risks. Asset protection strategies can be implemented in many ways – and they don’t have to be expensive or complicated.

The key takeaway here is that you should consult with an accredited adviser who specialises in family business advice before implementing any type of asset protection strategy for your business.

How FBA Can Help You With Your Asset Protection Strategies

At Family Business Advisory (FBA), our purpose is to help family businesses succeed on a sustainable basis. As such, we provide you with access to specialist family, business and technical services with a goal being to generate opportunities for families in business.

In order to complement our own particular specialised skills, over the past several decades, we have developed a network of trusted, professional advisers in such areas as:

Image of Services spectrum

Moreover, we work at all times to give you peace of mind and proactive support to help navigate any changes in the market brought about by legislative changes, geopolitical events and general market conditions – all to maximise your personal wealth and security.

These services are provided by FBA, in association with the Wealth IQ Group.

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