By Andrea Costa, Esq., Vice President, Financial Planning, HORAN Wealth
Most business owners are so focused on running their company day to day that they overlook critical planning opportunities—until it's too late. Without proactive legal and financial strategies, even a thriving business can face ownership disputes, financial pitfalls, or a leadership void when transitions arise. Whether you're a business owner or an advisor, recognizing these overlooked risks is key to protecting long-term success. Here are 10 of the most commonly missed planning opportunities that can make or break a closely held business.
1. Outdated Government Documents Create Business Risks
Governing documents such as operating agreements, bylaws, and shareholder agreements are the foundation of how a business operates. I am sure it is no surprise to corporate counsel that many business owners neglect to update these documents regularly. As the business develops, so too should the documents that govern the company. Outdated governing documents can lead to inefficiencies or potential legal issues. Regular reviews and updates help ensure that the company continues to operate smoothly, and that ownership and management roles remain clear.
2. No Emergency Succession Plan? Your Business is at Risk
A sudden illness, accident, or other emergency event can disrupt the business. A comprehensive emergency succession plan ensures that the company has clear steps in place to handle leadership transitions in unforeseen situations. This plan should identify interim leadership, operational continuity strategies, and a clear line of succession. Keep in mind that this emergency succession plan must be harmonized with existing governing documents of the business and the owners' estate plan. Preparing for the unexpected will help mitigate risks associated with sudden leadership changes.
3. Failing to Develop a Long-Term Business Succession Plan
A long-term succession plan provides a clear roadmap for transitioning ownership and leadership to the next generation or key stakeholders. Without one, businesses often face uncertainty, operational disruptions, and family conflicts that can threaten long-term stability.
For founders and current leadership, the top priorities are typically maintaining control, securing stable cash flow in retirement, and preserving family harmony. Meanwhile, the next generation often seeks greater autonomy, clearer expectations, and a defined role in the company's future. Without structured communication and aligned planning, these differing priorities can lead to frustration, misalignment, and resentment.
An effective succession plan identifies future leaders, provides structured training, and addresses financial, operational, and legal considerations to ensure a smooth transition. When done well, it not only preserves the company's value but also strengthens its ability to thrive beyond the current generation.
4. Keeping Business Ownership Personal Instead of Protected by a Trust
Business owners often overlook the importance of trust ownership of business interests. A well-drafted trust ensures that the ownership of the business passes according to the owner's wishes and avoids the publicity of probate administration. A business appraisal is almost always needed if a business is subject to probate administration, and if so, once filed, the appraisal becomes a matter of public record in most jurisdictions. The appraisal may even be available online at the click of a button. Many business owners retitle their business interests to the name of their revocable trust while they are living. Some jurisdictions also permit a business owner to own the business interest directly while living with the caveat that a trust will receive the business interests under a transfer on death designation at the owner's death. More advanced trust planning strategies may provide transfer tax savings and bolster asset protection for generational wealth.
5. Holding Real Estate and Operating Companies in the Same Legal Entity
Many closely held business owners hold their real estate assets and operating company assets in the same business entity, but this may expose those assets to unnecessary liability. The liability risk associated with an operating company is often very different than the liability risk associated with real estate. When these two asset classes are comingled under the same legal entity, both are subject to any claims against that legal entity. By placing real estate in a separate legal entity, such as a limited liability company (LLC), owners can protect business assets from real estate-related risks (and vice-versa). This strategy also offers potential tax advantages and simplifies asset management.
6. Never Getting Around to Preparing a Thoughtful and Equitable Estate Plan
An estate plan is essential for ensuring that business owners' assets, including their business interests, are distributed according to their wishes. Business owners should develop an estate plan that is both thoughtful and equitable, addressing the financial needs of their heirs and ensuring the business remains operational in the future. It's important to balance the interests of family members who may not be involved in the business with those who are actively managing it.
7. Preparing a Buy-Sell Agreement, but Never Updating the Terms as Circumstances Change
A buy-sell agreement is a crucial document that outlines how ownership shares of the business will be transferred if an owner dies, becomes disabled, or decides to exit the business. However, many business owners forget to update their buy-sell agreements as circumstances change, such as the death of a co-owner or changes in the business's value. Keeping the buy-sell agreement up to date is essential for smooth transitions and to avoid conflicts between business owners.
8. The Hidden Cost of Skipping Business Valuations
Regular business appraisals provide a realistic, up-to-date assessment of a company's value. Without them, business owners risk being caught off guard when it's time to sell, transfer ownership, or settle an estate.
A proper valuation also plays a crucial role in financial planning. It helps determine the appropriate life insurance coverage needed for a buy-sell agreement, informs estate planning decisions, and sets realistic expectations for all parties involved in succession planning.
This step becomes even more critical as business owners approach retirement. Without a clear valuation, they may overestimate or underestimate their financial position, leading to misaligned expectations and potential obstacles in the transition process.
9. Mismanaging Life Insurance in Buy-Sell Agreements Can Cost You
Life insurance is a key funding mechanism for buy-sell agreements, but too often, business owners take a "set it and forget it" approach. Over time, policies need to be reviewed to ensure they are performing as expected and that the death benefit still aligns with the business's needs.
As a business grows, its value increases—but if life insurance coverage remains unchanged, it may no longer be sufficient to fund a buyout. This can create financial strain on both the business and surviving partners at a critical moment. Regular policy reviews help ensure that coverage keeps pace with the company's valuation and that the buy-sell agreement remains fully funded in the event of an owner's exit or death.
Another overlooked risk? Life insurance owned by the business may increase the company's value for estate tax purposes, potentially leading to a higher estate tax liability for a deceased owner's estate. A qualified estate planning attorney can help navigate this issue and recommend strategies to mitigate unnecessary tax burdens.
10. Leaving Creditor Protection Features Out of the Owner's Estate Plan
Another often overlooked aspect of estate planning for business owners is incorporating creditor protection strategies into their plan for the next generation. This is particularly important if the business is family-owned because creditor claims (including those of divorcing spouses) could threaten the stability of the company. By including creditor protection provisions in the estate plan, business owners can help safeguard the business from external threats and ensure that it remains in the family's control.
Financial planning for closely held business owners is about more than just managing daily operations—it requires a proactive, strategic approach to ensure long-term success and business continuity. By identifying and regularly reviewing these ten commonly overlooked planning opportunities, business owners can protect their assets, drive future growth, and create a seamless leadership transition. These steps not only safeguard the business's value but also reduce risks and provide lasting peace of mind for owners and their families.
These are just a few of the critical planning opportunities that can strengthen a business and protect its future. For business owners, having the right advisory team—one with deep legal and financial expertise—can mean the difference between long-term success and unexpected challenges. And for legal and financial advisors, proactively addressing these gaps positions you as a key resource in helping clients build stronger, more resilient businesses that stand the test of time.
Andrea Costa, Esq., Vice President, Wealth Strategy & Financial Planning
Andrea Costa, Esq., Vice President of Wealth Strategy & Financial Planning, specializes in creating comprehensive financial plans for executives, professionals, business owners, and families with multigenerational wealth. With nearly a decade in law, she has expertise in financial planning, business succession, estate tax strategy, and dispute resolution. Andrea collaborates with attorneys, accountants, and bankers to align strategies across a client's advisory team. Her unique background makes her a valuable partner for families and businesses seeking to resolve conflict and define a lasting legacy.
Secure Your Business Future, Starting Today
Running a successful business demands focus, but overlooking crucial planning opportunities can leave your legacy vulnerable. Whether you're safeguarding your company for the next generation, preparing for transitions, or ensuring long-term stability, proactive planning is essential. You don't have to navigate these complexities alone.
At HORAN Wealth, we partner with business owners like you to identify and bridge critical gaps in financial and succession planning. We understand the dedication it takes to build a business and are committed to helping you protect its value and ensure its continuity for years to come.
We believe in building resilient businesses that support lives of abundance and purpose. Let us help you create a plan that secures not just your company's future, but your family's legacy as well.
📩 Ready to address potential gaps in your business plan? Talk with your HORAN Wealth advisor or reach out to us to discuss how we can help strengthen your business's foundation, together.
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