Will Your Business Survive Without You?

Author: Mark D. Hofstee
Date: 03/09/2009

As business owners, you have enough to worry about. The day-to-day struggles of managing staff and keeping costs under control, along with the ongoing need to grow your customer base leaves little time to think about much else. One of the most overlooked aspects of business planning is how (and if) your business could survive without you. Fortunately, there are some very effective and affordable ways to plan for such an event, one of the best of which is to purchase insurance.
Many businesses are solely owned and operated and have only one shareholder. Usually, the assumption is if that person dies, liquidating the business’ assets will net more than enough funds to cover the outstanding debts. Often this is not the case. With some businesses, the value of the product or idea passes with its owner. With others, a family may be forced to sell assets quickly at a large discount. And now more than ever, business owners are being forced to use their personal assets as collateral or sign a personal guaranty in order to secure the funds needed to run their business. When business assets are not enough to pay the debt, the bank’s only option is to pursue claims against the owner’s estate. Adequate life insurance provides the necessary cash upon death to avoid this problem. The premiums are usually quite affordable and may even be tax deductable.
In the case of a business with multiple owners, buy-sell agreements are often used to establish the terms and price for which a deceased owner’s share will be purchased. Funding these agreements with life insurance provides available funds and guarantees that the deceased owner’s family will be compensated fairly and promptly. Without insurance, assets may have to be sold which may disrupt the business.
One last issue to consider is disability. It is possible to purchase a policy that covers an owner who becomes disabled. A disabled owner creates a two-fold problem for the business. First, that owner is most likely still entitled to receive income and second, the other owners may be forced to work even harder to fill the gaps if that owner can’t contribute. Similar to life insurance, a disability buy-out plan funds an agreement to provide the remaining owners with the funds to purchase the disabled owner’s interest. The payment can be made in a lump sum or through a series of periodic payments.
Proper planning for death and disability is critical and could be the difference between the life and death of an entire business. If you’re not sure what would happen with your business in such an event, let us help you develop a plan. We can set you up with the proper buy-sell agreement and refer you to qualified insurance agents who specialize in the types of insurance your business needs.