AAHOA Chairwoman (2019-2020)
There are many decisions that go into starting a new business, especially a hotel. Hoteliers must consider location, write up a business plan, and negotiate a multitude of contracts. At first, these tasks may seem like the most daunting decisions a small business owner will face. However, once the business gets going, every owner inevitably faces concerns about longevity and sustainability: What happens to the business if something happens to me? What happens to my family? Am I doing everything possible to prepare my business for the future, with or without me?
These questions are intimidating, but expert consultation can ease the burden and should always be a new business owner’s first step. Seeking guidance as early as possible from attorneys, accountants, and financial planners who have extensive experience in working with small businesses can make the process more manageable.
One major area of business ownership that can greatly benefit from expert advice is how to legally structure a business, which often is not given the consideration it needs. For hoteliers, there are different structuring options, primarily a Limited Liability Company (LLC) or a corporation, and it is up to you and your advisors to determine what is best for your business. Typically, hotels are structured as an LLC for several very good reasons. An LLC is known as a pass-through entity, which means the company does not have to pay corporate income taxes. The owner has the ability to choose how they want to file, an advantage that is unique to the LLC structure. This comes in handy for hoteliers who file profits as individual income at first but then decide to file as a corporation later on. The “limited liability” aspect of the LLC also grants protections to the owner. If anything should happen to the business, such as unexpected debt or a lawsuit, the owner is not held personally liable. The requirements for business structures vary from state to state, so working with an attorney who is familiar with the regulations of the state in which the LLC is established is important.
In addition to business structure, insurance and trust planning is key to lasting success. In the short term, you want to make sure that if you pass away or become unable to work, the business would be able to continue and provide enough income to sustain your family. In the long term, hoteliers should be aware of the estate tax. This tax can be a huge expense to your beneficiaries, depending on the value of your business. The best way to prepare for this is to establish the appropriate insurance and trusts to cover the tax. Your advisor and attorney can help determine what trusts are appropriate, and which assets should be placed into each trust.
Being a hotelier comes with many opportunities as well as all of the day-to-day and long-term challenges of being a small business owner. It is important to surround yourself with a team of professionals that you trust to help set up and continue to develop your plans. You should consult with your team (accountant, attorney, advisors) at least once a year, and they should all be in communication with each other to make sure your planning is always current and suited to your situation.