I remember the first time someone asked me that question. I had no idea what they were talking about.
That “someone” was a successful entrepreneur. His words still echo in my mind. He said, “Unless you create a business with assets, you do not have anything you can sell when you want to exit. This means you have created a job for yourself and nothing more.”
I had not really thought about that before. As a service-based business, my income is based on work I complete for clients at any given moment. As lawyers, we talk about “books of business,” but it’s a silly concept because a client yesterday isn’t a guaranteed client for tomorrow. But I don’t want to work long days for the rest of my life, so I started thinking about asset accumulation and asset protection.
That’s why I’ve created and protected intellectual property in my law firm. I’m also executing a strategy to acquire other assets (mostly real estate) that will appreciate in value over the years. This way, when I’m ready to exit, I have significant assets to add to the value of my client relationships.
Your business is no different.
In addition to the client relationships you build, your business has physical assets and intellectual property. Things like:
- The name of your business
- The name of any process or system you use to service your clients
- Trade secrets (like a formula or a recipe)
- Long term lease agreements
- Customer contracts and purchase agreements
- Accounts receivable
- Books, manuals, marketing materials and blogs that you write
- Your website
- Your equipment, furniture, cars and computers
- And much more….
All of these assets have value…as long as you protect them.
Most business owners forget about the second part – protecting assets for the long term and maximizing their value when you are ready to sell.
You need to protect your business assets from someone looking to do you harm.
One of the ways to do this is to create a legal structure that insulates valuable assets from dangerous ones.
If you have a fleet of trucks that delivers your goods, you may want to own the trucks in a transportation company that is separate from your main business.
When you own multiple properties, you might want to set up the ownership of each property in a separate company, with different operating agreements, and ownership structure.
You may want to create a special type of trust that owns your intellectual property and licenses it back to your business.
These are just a few examples and not right for every business. There are many legal structures a business owner can use to help make sure his most valuable assets are insulated from potential threats. The key is setting up a structure that will grow with your business, keep taxes down, and allow for ultimate flexibility when you are ready to exit.
It doesn’t matter where you are in the business lifecycle; it is never too early or too late to begin thinking about asset protection. The best time to plan your asset protection strategy was when you started your business. The second best time to plan it is RIGHT NOW.