Although it is often hard to fathom an event that may not occur for many years, it is important to put plans in place in advance. The failure to do so could result in the eventual loss of the business. There are several factors you should keep in mind in making plans for the future of your small business.

1. Identify a successor(s). Many small business owners plan to transfer their business to a child or children, or sometimes, grandchildren eventually. If you have more than one child, it is important to consider which of them has an interest in stepping into your shoes, as well as whether that child has the skills needed to do so successfully. It is important not to assume that just because one child is the oldest, control of the business will go to that child. The continued success of the company requires that the member(s) of the next generation who will take over the reins have the business acumen and commitment needed to run it.

You may shop around and find a lawyer to create planning documents for you, or you might try creating your own DIY plan using online documents. Then, you’ll put those documents into a drawer, mentally check estate planning off your to-do list, and forget about them.

The problem is, your estate plan is not a one-and-done type of deal.

In fact, if it’s not regularly updated when your assets, family situation, and/or the laws change, your plan will be totally worthless when your family needs it. What’s more, failing to regularly update your plan can create its own unique set of problems that can leave your family worse off than if you’d never created a plan at all.

The following true story illustrates the consequences of not updating your plan, and it happened to the founder and CEO of New Law Business Model, Alexis Neely. Indeed, this experience was one of the leading catalysts for her to create the new, family-centered model of estate planning we use with all of our clients.

The father-in-law story

When Alexis was in law school, her father-in-law died. He’d done his estate planning—or at least thought he had. He paid a Florida law firm roughly $3000 to prepare an estate plan for him, so his family wouldn’t be stuck dealing with the hassles and expense of probate court or drawn into needless conflict with his ex-wife.

And yet, after his death, that’s exactly what did happen. His family was forced to go to court in order to claim assets that were supposed to pass directly to them. And on top of that, they had to deal with his ex-wife and her attorneys in the process.

Alexis couldn’t understand it. If her father-in-law paid $3,000 for an estate plan, why were his loved ones dealing with the court and his ex-wife? It turned out that not only had his planning documents not been updated, but his assets were not even properly titled.

However, it also presents some challenges, particularly for small businesses. According to the June 2019 National Federation of Independent Businesses (NFIB) Jobs Report, small business owners identified the difficulty of finding qualified employees as their single most important business problem. Although 58 percent of small business owners indicated that they had hired or tried to hire employees, 86 percent found that there were few or no qualified applicants for their open positions. Nevertheless, there are some strategies that your small business can use to attract excellent employees, even in a tight job market.

1. Strive to offer competitive wages. Although it is difficult for small businesses to compete with the salaries offered by large corporations, as your business becomes more profitable, view your employees as an investment that can help your business continue to grow. Twenty-eight percent of small business owners surveyed in the June 2019 NFIB Jobs Report indicated that they are offering higher wages, which can help attract the most qualified employees.

2. Emphasize a potential employee’s opportunity for more rapid advancement. In a large company, an entry-level employee may have to advance through several positions before obtaining the level of responsibility that an employee of a smaller business will, out of necessity, obtain relatively quickly.

3. Stress employees’ opportunity to gain a wider range of experiences. In larger companies, employees tend to have more specialized jobs. In a small business, every employee is incredibly valuable and will likely be given a broader range of responsibilities and work experiences.

One crucial part of estate planning that frequently gets overlooked is ensuring your loved ones can easily locate all of your planning documents and other key assets upon your death or incapacity. One simple way to handle this important task is to create a “When I Die” file. According to A Beginner's Guide to the End: Practical Advice for Living Life and Facing Death, this is a “findable file, binder, cloud-based drive, or even a shoebox where you store estate documents and meaningful personal effects.”

This new book, authored by Shoshana Berger and BJ Miller, was recently excerpted in TIME magazine, and the excerpt discussed the importance of creating such a file in order to “save your loved ones incalculable time, money, and suffering” upon your death.

We agree with Berger and Miller, and would add that this file is every bit as important in the event of your potential incapacity, not just your death—and perhaps even more so. We also offer some additional guidance here about how to ensure your “When I Die” file provides maximum efficiency and effectiveness for the people you love.

Death can be a logistical nightmare

Following the death of her elderly father, Berger learned first-hand how agonizing it can be to not have a “When I Die” file. Though her father made his will and trust easily accessible, Berger and her sister spent nearly two years tracking down his other planning documents, assets, and finalizing his affairs.

Beger recalls “sleuthing through his file cabinet and mail and requesting what seemed like a mountain of duplicate death certificates to prove to various companies that he had actually died.”

In some circumstances, the IRS allows you to take a bad debt deduction.

What Is Considered a Business Bad Debt?

According to the IRS, a business bad debt is considered a loss incurred from the worthlessness of a debt that was created or acquired in a trade or business or was “closely related” to your trade or business when it became partly or completely worthless. If your primary motive for incurring the debt was related to the business, the IRS will consider the debt to be closely related to the business.

The IRS provides the following examples of bad business debts: (1) loans to clients, suppliers, distributors, and employees, (2) credit sales to customers, or (3) business-loan guarantees. For small businesses, the most common bad debt arises from credit sales to customers.

If the circumstances indicate that your business has no reasonable expectation that the debt will be repaid, it will be considered worthless. Depending upon the relevant facts, this could be on the date the debt is due or even prior to that date.

You must be able to demonstrate that you have made a reasonable effort to collect what is owed to your business prior to being eligible for the deduction. What is considered “reasonable” will vary depending upon the type of business in which you are engaged. It is unnecessary to sue the customer if you can show that a judgment would be uncollectible. For example, if the customer has filed for bankruptcy, this is sufficient to demonstrate that your debt is uncollectible and therefore worthless (assuming it is an unsecured debt).