Planning for Your Business's Future
If you weren't around to run your business, what would happen to it and the income it provides your family? Would a successor be ready to take over? What will happen when you eventually retire? Are your family members planning to step in and continue what you've started? Do you expect to continue receiving an income from your business after you stop working? People often allow the day-to-day demands of running a business to prevent them from answering these important questions until too late. Don't let it happen to you.
In a family-owned business, the succession plan may outline the transition of ownership to the next generation without necessitating any type of formal buy-sell agreement. This type of succession plan may be focused on when the business will transition to the next generation, how to mentor or train the next generation so they are prepared for ownership, and how to protect the value of the business for the next generation at the death of the owner;
For a business with multiple owners, the succession plan may require that ownership stay among current and active owners, necessitating an exit strategy for an owner who retires, becomes disabled or dies. This is where a buy-sell agreement, which is part of the overall succession plan, would likely be used to ensure that the business properly transitions among the owners.
Buy-Sell Arrangements
The success of a business is generally dependent on certain individuals and owners. The death, disability or retirement of an owner can become potentially devastating events if adequate planning is not in place. Buy-Sell Plans are agreements in which one party agrees to buy, and another agrees to sell a business interest in the event of death, disability or retirement. Properly funded buy-sell plans allow for an orderly transfer of ownership, and life insurance can be an ideal source of funding for these important forms of succession planning.
Key Person Insurance
Does your client want to protect the business from the loss of a key employee? What would happen to the business if the something were to happen to the key player? In many small businesses, key employees often are as critical to the continued success of a business as the business owner. Life insurance can help protect the value of a business at the loss of a key employee by providing liquidity to sustain the business while a suitable replacement is hired and trained.
Personal Key Person
For small or single-owner businesses, succession planning is not about funding a buy-sell arrangement, but rather ensuring that the owner’s family can continue to prosper once he or she is no longer involved in the business. Properly funded “Personal Key Person” plans can help you prepare for the future and protect your family with permanent life insurance.
Estate Equalization
Do you want to leave your business to your family? If that is the case, buy sell arrangements are generally not needed. Ultimately you need to consider who is likely to take over and run the business. If there are multiple heirs, there may be one who will take over and there may be others that have no interest in taking over the family business. In these types of circumstances, life insurance is generally used as the great equalizer. It provides the liquidity needed to create a fair and equitable arrangement, while the business can be transferred to that one who ultimately will run it.
Allow us to help you analyze your needs. You may be surprised at how easy it is to add the types of protection and planning appropriate to your business without spending a fortune.
