During the month of June, the Pinney Insurance blog will focus on business planning.
It’s not surprising that business protection ranks as the number one priority for the majority of business owners. It’s important for small and large companies to strategically plan long term in order to effectively protect themselves. Often times, business owners put together a plan of action which entails financial analysis, roles, goals, and direction. What they fail to do is efficiently map out a plan for how the business will be run (and by whom) after misfortune occurs.
You may have heard this referred to as Business Continuity Planning.
Planning for a partner’s death or major injury is not something most business owners participate in. The thought alone can be overwhelming and feel unnatural. Still, it is imperative to have a plan in place when and if an event such as death, disability, or the loss of a key employee occurs.
There are many questions to ponder when it comes to long-term business planning.
If one partner should die, who does his share of ownership go to? Is the surviving party responsible for any kind of buyout? How can the company continue to function without him/her? What if I have to retire early? How do I transfer my portion of ownership to my children?
Similarly, business owners must ask themselves what happens in the event that his/her partner is unable to work for a significant amount of time, or what happens if a key executive—one so important that his/her departure will have financial effects on business—leaves the company. How about when one of two owners simply decides to sell or pass their percentage on to a child?
And don't forget another important question: Who is paying for all of this, and how much will it cost?
Proper business planning can effectively transition ownership from multiple parties to a single individual. Done with the correct policies in place, a sound business plan will also ensure the surviving or healthy owner keeps the company thriving, avoiding the need to make large payments to outside parties, sell the business all together and/or suffer bankruptcy.
A buy-sell agreement is a great approach. Learn more about them in this blog post.
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