A successful business begins with talented management. However, that same business can suffer tremendously when a key employee or an owner dies or becomes disabled. The financial impact that a death or disability of an owner can affect not only the ability of the business to survive, but also the overall value of the business.
Geoff Thompson's full blog can be found here
There are five questions a business owner should ask when thinking about protecting a business:
When evaluating the impact on a business at the death or disability of an owner or key employee, business protection planning can assist. Since the death or disability of an owner or key employee can have a serious impact on future profitability, having a plan in place may be the key to the continuation of the business. This change may affect a great number of people, depending on how many employees will be affected by the death or disability.
If business loans have to be repaid, the personal assets of a small business may have to be used if there are not liquid funds available. Without any liquid funds available to pay business overhead expenses, if an owner becomes disabled and is unable to work, there may be no choice but to sell or liquidate the business, even if a short-term recovery is likely.
Key Employee Indemnification
The most valuable assets a business has are not the building and equipment, but rather they key employees who make significant contributions to the success of the business. The unexpected death of one of these key employees can have a serious impact on business profitability.
Funds may be needed to supplement the business for the loss of a key employee for several reasons, including:
Many small business owners frequently have to personally guarantee a commercial with their own personal property. Therefore, the owner’s personal assets could be at steak if the owner dies with an outstanding business loan. Even if a personal guarantee is not required, many creditors require assurance that a loan will be repaid if the owner dies suddenly and unexpectedly.
Advance planning can help to minimize the negative financial impact of an owner’s death when there are outstanding business debts. The business, the deceased owner’s family, and any other owners may be negatively affected financially.
Some issues to consider when an objective is to guarantee repayment of business loans at an owner’s unexpected death:
When a business owner becomes hurt or sick and is unable to work, the day-to-day costs of operating a business do not stop. Rent, salaries, telephone, utilities, and other expenses are a few examples of ongoing costs that must be paid for the business to continue without interruption.
When an owner suffers a disability for a period of time, there are three alternatives with very different outcomes:
When planning to keep the business up and running during a short-term disability period, there are some questions that a business owner should ask: