PID 3590

Protecting Your Business

Protecting Your Business

Andrew Brown, CFP®

How to grow, evolve, and pivot are skills that successful business owners become adept at, and many choices go into developing a business’s roadmap to success. Whether that journey is faced by a sole owner or multiple owners, regardless of the industry or type of business there will always be speedbumps and challenges along the way. That’s what makes it so rewarding to be part of a successful business.

One particular set of challenges that can be overlooked is the untimely death or disability of an owner or key employee. It’s easy to understand why, especially in the early stages – the last thing you have time to think about is a worst case scenario. The day-to-day demands of your business are likely enough to keep you busy. Unfortunately, time and time again, death and disability events do happen, so what are some ways you can help protect your business?

Buy-Sell Funding
A buy-sell agreement is the document that lays out the process by which ownership will transfer if a business owner were to pass away. There are many ways to “fund” a buy sell agreement, but one of the most common is life insurance. Having a plan for that buyout event may not seem important early on when the value of your company is small, but as that value grows, so does the dollar amount you would have to come up with to buyout your business partner’s interest in the event of their death. Life insurance can provide a simple method to have funds readily available for the buy-sell. It’s also important to continue to benchmark the value of your company vs. your level of insurance coverage through the years. As the value of your business changes, so will your buy-sell funding needs.

Disability Buyout
Another event that could trigger an ownership buyout is a disability. Some buy-sell agreements include disability as a qualifying reason for an owner to have their membership interest purchased by the other partners. A disability buyout policy can provide a lump sum of dollars to the parties looking to purchase the ownership stake of the disabled owner. This is important coverage to consider as the chances of a disability event are much higher than an early death.

Key Person Insurance
The last business insurance policy I’ll mention is a “key person” life insurance policy. This coverage can be placed on an employee who carries value to the business that would be difficult to replace. The policy benefit that pays in the event of an untimely death could be used to supplement the loss of income to the business or be used as a recruiting tool to hire a replacement. These can be structured in a variety of different benefit amounts to tailor the replacement needs around each specific employee.

As a business owner, you know that your business is often your most important asset. Taking time to protect it from unforeseen circumstances is certainly something to consider!