INSURANCE . RETIREMENT . INVESTMENTS
Why Should My business be in the 2 %?
A recent study suggested they are over 20,000 businesses registered at Corporate Affairs. However. ONLY 2 % will successfully transition to the next generation. If businesses are currently the ultimate driving force behind our economy. Hence. It is absolutely imperative that we protect our businesses, so that we can preserve our economy.
“DON’T ASK WHAT YOUR COUNTRY CAN DO FOR YOU, BUT WHAT YOU CAN FOR YOUR COUNTRY” - Abraham Lincoln.
For most of these companies, the untimely death of one a “key” person can result in the collapse of a business unless there are sufficient plans in place and funds available to keep the business afloat.
Having a sound ‘Business Succession Plan’ (BSP) for your essential employees and managers can cover the cash flow needs of your business, including short falls in revenue and increased expenses incurred during the recruiting and hiring process. The costs involved for recruitment and training are significant factors when finding the right fit to replace your company leaders and keep your business running.
If you have a mortgage on your business property, equipment, or have a line of credit or other debts, you have financial obligations to cover. Simply buying a ‘BSP’ ensures that the funds needed to pay off the bank or debtors are readily available if the unexpected happens.
Without ample cash flow, no businesses can continue to operate successfully. A sound ‘Business Succession Plan” can provide your business with liquidity to make-up revenue shortfalls that may arise with the death of a key employee. This plan would afford the funds needed to maintain operations and to provide for the disposition of the company based on your objectives essentially protecting your company’s fair market value.
If there are multiple company owners and shareholders, key man insurance can be purchased on the lives of each owner for the intent of buying out the deceased owner’s spouse or estate. Buyout or Buy-sell life insurance is critical for small companies with significant assets that may not be liquid. It protects company owners from unintentionally being in business with the partner’s spouse or family. It also offers a clean disposition of the estate for the survivors, and allows the surviving business owner to gain the equity position from the deceased member’s estate.
Retaining and keeping key employees is critical. Providing them with an executive benefit package, including life insurance with cash value growth, or term insurance as supplemental benefit can be an appealing addition to a compensation package. The policy can also be structured in a way that obligates or entices the employee to remain loyal to the company or corporation for a period before the benefits become vested commonly referred to as “golden handcuffs”.
Thank you for joining us for Part 1. Please join us again next week for Part 2 of this article.