What Does Insurance Have To Do With Succession Planning?
December 9, 2016
Succession Planning Question 6: What about insurance and buy-sell agreements?
When planning for the time when you step away from the day-to-day worries of running a business, you may picture a vacation home in the mountains or on the beach, perhaps traveling to places you’ve never been, or even starting another company. What none of us like to envision is that we may not be healthy enough to see that day, or even still around. That’s why things like disability and life insurance are such buzz-killers – yet so necessary.
For the sake of your loved ones, partners and employees you need to prepare for a worst case scenario. That means having adequate insurance to protect your heirs from losing the business you worked so hard to build.
What, for example, would happen if you were incapacitated by accident or illness for an extended period of time? Will the business be able to maintain operations? Disability insurance payable to the company can help make up for lost revenues, while insurance benefits paid to you can help replace personal income.
If you stepped in front of a beer truck tomorrow, do you have adequate resources to enable your heirs to pay estate taxes and keep the business going so they don’t have to sell at a loss?
And what about key employees? What would be the impact on your business if an essential employee were no longer in the picture? Would their loss reduce the value of your company if you were getting ready to sell?
It’s wise to consider the kinds of insurance that make sense for your business today, and for your succession plan. Talk to qualified estate planners who can advise you about reducing potential tax liabilities and assess your need for life and disability insurances. Then act on their advice.
For the same reasons, consider setting up a buy-sell agreement if you have a person or persons you plan to sell the business to sometime in the future. Whether it’s one or more employees or someone outside the company, having a buy-sell agreement in place will make it easier when you’re ready to move on, and much easier on your heirs if something unexpected happens to you.
None of us enjoys coming to grips with our own mortality and planning for the worst, but along with financial risk and hard work, estate and succession planning are part of being a responsible business owner.
Which brings us to our next question and one of the greatest obstacles to obtaining the maximum value of your business when you’re ready to sell: Is your business too dependent on you?