Does your business have a will?
If you are a business owner, you need to ask yourself a very important question with regard to your company: “Does your business have a will?” Although it may seem like a strange thing to ask, the truth is that while most business owners are focusing on today, they really need to be focusing on an exit plan.
In fact, every owner of a privately held business should have an exit strategy plan that helps to ensure both the company and the owner will achieve the goals that have been set out for each.
There are a number of ways to create an exit strategy for your business, including:
1. Buy/Sell Agreement
If you own a business with other owners or partners, you should consider the use of a buy/sell agreement. Typically, when there are two or more owners of a business, the sudden passing away of one can cause a great amount of financial hardship for the entire business.
When setting up a buy/sell agreement, each of the business owners purchases a life insurance policy on the other(s). Then, should one of the owners pass away, the life insurance proceeds can provide the necessary funds for the remaining owner(s) to purchase the decedent’s portion of the business. These funds can also allow the business to continue running during this time of transition.
Buy/sell agreements can also assist family members and other survivors of the decedent as well. In this case, these individuals can be assured that funding will be available for the other owner(s) to purchase the business, and the funds that are paid out to the survivors could then be used for paying final expenses as well as to provide ongoing income to the decedent’s loved ones.
2. Key Man Insurance
There are many ways in which businesses have a similar need for life insurance as individuals for the protection against the unexpected death of an owner, as well as the need for funds in order for its survivors to go on. Using a key man life insurance strategy will allow a business the protection that it needs in the event of the passing of a key executive.
The proceeds from the key individual’s policy can be used for the company to continue on with its operations while a replacement is sought or other alternative strategies are implemented. These funds can be the difference between the survival of the business or it going under after the loss of an important member of the company.