By Susan Blais & Barry Fisher on KPRL Radio
Why is it that one of the easiest ways to protect your business and family is often overlooked until after it’s too late? Succession planning is part of being a responsible owner, employer and provider. I understand few want to think about their own mortality or not being able to get up in the morning and go to work. While failure to plan is certainly an option, allow me to ask a few probing questions you may wish to consider.
Are there other owners of your business? Yesterday I visited two owners of a small business. It was a classic “Mr. Inside, Mr. Outside” relationship. If one is taken out of the picture due to death or disability, the cascade of bad outcomes is clear. Upon death, half the management team would be gone. The surviving partner would immediately have new business partners: the family of the deceased. Most likely that family would expect ongoing salary or distributions. Or, if there’s a buy-sell agreement in place, the heirs will be looking for a check that represents their portion of the fair market value of the business.
Do you have contingency plans that map out the continuation of your business in the event of the death or disability of one of the owners? Without a written plan, the death or disability of an owner or active shareholder can have far reaching and detrimental consequences. These outcomes can be avoided by having a buy-sell/stock redemption agreement, funded by life and/or disability insurance, that lays out the path forward.
Are there family members actively involved in the business? This can include spouses and children who have a vested interest in the business’ success but don’t necessarily have the skills to replace the deceased or disabled business owner. What are their expectations going forward? Have you discussed the business continuation plan with family members or even key employees?
Have you anticipated the tax implications of buying out a disabled or deceased business partner? Depending on the value of the business and the structure of the buy-sell agreement, there could be capital gains or estate-tax implications when an owner dies or becomes disabled. Have you considered this and made contingency plans for these events?
What’s your business really worth? At the heart of business contingency planning lies a valid business valuation that represents a fair market value of the business. Those impacted by an untimely death or disability of a business owner will require information, as will the IRS as appropriate tax filings progress. Blaze ‘n Bear Insurance Services, Inc. provides complimentary business valuations, for those qualified, in order to facilitate the planning process. Don’t delay, call us today at (805) 635-7200 or email me to learn more – [email protected]