The Two most important steps to take during a Financial Crisis

There is simply no doubt that a financial crisis is one of the greatest risks to the personal wealth of most people.  Very few are positioned to handle, much less benefit from a financial crisis. Today that crisis is global in the form of a worldwide pandemic. The risks of this particular crisis are both unique and extreme.  This article is going to lay out the fundamentals of how to protect your wealth and resources during this uncertain time and the three critical steps I recommend you focus your attention on first.

The key in any crisis is to weather the storm.  From a financial perspective, we can look at this as a simple math equation.

                   (Income + Assets) - (Debt Service + Expenses) = Time (you can weather a crisis)

What is obvious here is that if income goes down, without expenses going down an equivalent amount, then you will quickly be depleting assets.  Income is likely not under your direct control in a crisis.  What you do have some control over is expenses.  What’s also critical is your assets, because they give you the ability to subsidize your reduced income and preserve through the crisis.

THE STEPS

Step One: Recognize if your income is reduced (your business is closed) and your expenses are not (mortgage, loan payments, employees, suppliers, payables, etc.), and that this will drastically shorten the amount of time you can meet your obligations.

Step Two: Take steps to protect your hard assets because they are CRITICAL to giving you the ability to weather any crisis, including this one, and you cannot afford to lose any of them, and cannot afford to let a creditor decide how you use them!

Step Three: Create a plan of action and then execute, sooner rather than later.

THE PLAN OF ACTION

The FIRST and absolutely most critical step is to REDUCE EXPENSES quickly and efficiently.  This means reducing unnecessary staff, freezing business and personal spending, delaying payment of bills which can be delayed, and halting any projects, development or costs which are not mission critical.  

It does not mean handicapping your business to the point where you are not giving yourself a chance to evolve and potentially even thrive through the crisis.  However, what you need to make that shift is time, so by quickly reducing expenses you are buying yourself critical time.

The SECOND crucial step is to secure your assets!  That includes:

1. Physically securing assets which could otherwise be threatened, stolen or claimed and;
2. Legally protecting your assets to ensure that you have both your personal and business assets properly titled so that you don’t wake up one morning with them frozen or seized!

The area I see most business owners fail is securing their personal assets so that the risks and liabilities of the business don’t jeopardize them.  Oftentimes business owners see their business and personal financial life as one and the same. This should NOT be the case, and legally there are very clear and defined steps which can be taken to ensure that personal assets stay personal and separate from business liabilities.

The area of law that focuses on this is referred to as Asset Protection and it is perhaps more critical now than ever before to make sure you have taken the necessary steps and put a plan in place. 

The first step is something you and your family, business partners and advisors must do and do quickly.  The second step is something you need professional advice from an asset protection attorney.  The sooner you do BOTH steps, the more effective they will be in helping you to survive through this financial crisis.

Lodmell & Lodmell, PC is one of the nations leading Asset Protection Law Firms and the creators of The Bridge Trust®.  L&L serves clients nationwide and may be reached at [e-mail] or 602-230-2014.