Would your business be prepared if a catastrophic event occurred? Do you have a plan to cover the potential loss of a key person who leaves by choice or due to a serious illness, a disability or death; or to mitigate the consequences of a divorce, which can have a substantial impact on a family business?
Planning ahead can help you limit the damage to the business you have worked so hard to build and committed so many resources to. You may have protected yourself against certain risks by insuring your business against fire, damage to your premises and theft of equipment, but an unforeseen event you haven’t planned for can seriously affect your ability to deliver services to your customers. Lack of planning can be detrimental to the value of your business, company morale and business performance.
Key person protection can be a cost-effective way to help protect your business against the consequences of losing a critical individual, whether they leave by choice or due to death, a critical illness or a disability.
Insurance solutions
Insurance can provide some financial security if you are unable to work or earn an income due to an accident or illness. As a business owner, your continued presence may be critical to the company’s ongoing success. Several insurance strategies may be particularly significant in ensuring business continuity and security:
- Purchase insurance to help pay for overhead and specific expenses you will continue to be responsible for, even if you are temporarily incapacitated. Key person protection can be a cost-effective way to help protect your business against the consequences of losing a critical individual, whether they leave by choice or due to death, a critical illness or a disability.
- Fund a buy-sell agreement through an insurance policy. It can be a cost-effective way to enable business owners to purchase the shares of a partner or shareholder in the event of their death, a disability or a serious illness. This may allow you to take immediate steps to minimize the potential damage by reassuring employees, creditors, suppliers and investors; and ensure that the family of the partner or shareholder receives financial support.
- Insure against the loss of a key person. Key person protection can be a cost-effective way to help protect your business against the consequences of losing a critical individual, whether they leave by choice or due to death, a critical illness or a disability. You estimate the financial impact of this loss on your company and insure against the occurrence of specific events. Your business may receive compensation to the extent of the coverage you have purchased, which can help you manage unexpected expenses resulting from the loss.
- Consider the potential benefits of providing group insurance for your employees. This can be a valuable addition to your compensation structure, can help ensure long term employee loyalty and may make your company attractive to talented prospective employees. Ten key decisions for business owners
Retaining top talent
Many organizations misunderstand what employees and prospective employees are looking for from an employer. This may be one reason why organizations have difficulty attracting employees with the skills they need.
For a large percentage of organizations, mental health is a major cause of short term disability claims. Employees claim that the main reasons for leaving their employer are stress, lack of confidence in management, dissatisfaction with opportunities for promotion, base pay and lack of work/ life balance.
Analyze the potential business consequences of losing your most talented employees. To retain these valuable people, get to know them, reward them, keep them challenged and engaged, foster a team environment, offer them growth opportunities and provide a comprehensive and competitive remuneration package. This may help you maximize productivity and ensure business continuity.
Consider a family business divorce strategy
Divorce can have a major financial and emotional impact on a family business. It can also have an adverse effect on non-family members who work for the business. Consider the impact a divorce could have on the company morale, relationships and business performance. You may be able to minimize some of the negative effects through careful legal, succession and tax planning, but don’t overlook the benefits of a comprehensive family business divorce strategy. It can be an invaluable piece of forward planning.
Consider a pre-nuptial agreement as a way to avoid some of the conflict associated with divorce. While it may be difficult to discuss the subject, such an agreement can be a great tool. If the family business is the family’s largest asset, a divorce can result in the sale of the business and division of the proceeds between the former spouses. In such a case the valuation of the business is often the central issue. It can be highly contentious and should be an essential element of a family business divorce strategy.
A business valuation expert used in a family business divorce strategy can help:
- Resolve divorce issues and buy-out situations, as business partners will have a shared understanding of what the business is worth
- Achieve agreement on the fair market value of the business by obtaining input from everyone involved
- Obtain an objective valuation based on the research done
- Educate everyone so they understand the valuation and how it was determined
If you plan for the unexpected, you can help your business weather developments that may otherwise have a potentially negative impact. In addition to insurance and strategies to retain your key employees and mitigate the effects of divorce on the family business, don’t forget basic precautions. Ensure that computer systems are backed up and that important business and operational information is effectively communicated throughout the company to reduce risk in the event of the loss of key individuals.
At the Opheim Wealth Management Group, we can help evaluate and manage the various risks you and your business face. Please contact us for more information.