Real Estate & Legacy

The guide

Pay yourself first

Wealth outside the business starts with a set owner's pay on a schedule, a personal emergency fund, and a retirement account funded before the business gets the leftovers. A SEP IRA, a SIMPLE IRA or a Solo 401(k) fits an owner without employees; a 401(k) once there is a team.

Contributions reduce this year's tax and the money is yours regardless of what happens to the business.

Owning the building

When a business rents, the rent leaves. When the owner buys the building through a separate holding entity and rents it to the operating company, the rent stays in the family, the property appreciates outside the business's liabilities, and the building can be kept or sold on its own.

Titling, financing and the lease between the two entities need a preparer and an attorney in the room; the idea itself is simple.

Depreciation, in one paragraph

Buildings, vehicles and equipment are deducted over years, not the year they are bought, with rules that let some purchases be expensed faster. The bookkeeping job is a fixed-asset list that is current: what was bought, when, for how much, and what has been deducted so far.

It decides the tax on the day the asset sells.

What the business is worth

Small businesses are usually valued as a multiple of seller's discretionary earnings: profit, plus the owner's pay, plus one-time and personal expenses run through the business. The multiple rises with clean books, recurring revenue, and a business that runs without the owner.

Even a rough number, updated yearly, changes decisions: it is the difference between a job you own and an asset you can sell, hand down or borrow against.

Succession, three paths

Sell to an outside buyer, hand it to family, or sell to a key employee over time. Each needs the same groundwork: clean books for three years, contracts and licenses in the business's name, and a written plan for who signs, who runs payroll and who talks to clients if the owner is out for a month.

Start the groundwork years before the decision.

The papers that protect the family

A will, powers of attorney, beneficiary designations that match the will, insurance sized to what the household loses if the owner cannot work, and one document that says where the accounts, the passwords and the bookkeeper are. None of this is bookkeeping; all of it is easier when the books are current and the numbers are known.