Many small, closely held businesses fail to survive beyond the first generation. One reason is the failure to plan for the disposition of the business at the owner's death, disability, or retirement. A second reason is the death or disability of a key employee, who may be vital to the success of the business. Often the key employee is a family member.
It’s never too early to consider some common planning strategies that may ensure your business’s survival:
You can successfully plan for the future disposition of your business through a properly structured buy-sell arrangement, which can:
The agreement should include how payment will be made for the business interest. Options include cash payments from savings, borrowing, an installment sale, or life and/or disability income insurance.
If you use life and/or disability income insurance to fund the obligations under the arrangement, you can be assured that cash will be available when you need it. A buy-sell arrangement, funded with insurance, may be the most important step you take in securing your financial future and the continued operation of your business.
Key Employee Protection
A key employee is one whose talents, managerial skills, and experience you depend on. When you lose a key employee because of disability or death, the financial impact to your business can be devastating. You may lose income, credit, and goodwill, and incur costs to replace the employee. But you can protect your business from such a loss through life or disability income insurance.
With these policies in place, upon a key employee’s death or disability, the life insurance proceeds or disability income benefits will be paid to the business. Those funds can be used to help meet debt obligations, offset lost sales, or cover the expenses associated with recruiting, hiring, and training replacement personnel.
For further information on how a proper business continuation strategy may benefit your company – contact BPB Associates at 770.632.2733.