Business Protection Planning

A business generally depends on an individual or a few people to produce the profits, provide the capital or manage the business. If one of those people die or are unable to continue working and there is no viable succession plan, there may be significant financial hardship for the remaining business owners and family members. For every business it is important to look at the impact of 3 concepts to protect your business, yourself and your family.

Buy sell protection

If you are a co-owner in a business, one of your main concerns could be the continuation of the business in the event that another co-owner dies or is permanently disabled and cannot continue to be a part of the business. In such situations, the remaining owners of the business typically do not want a successor of the deceased owner to become an integral part of the business. The successor may not have the necessary business expertise to be one of the owners, but it may be impossible for the remaining owners to keep him out of the business.

A buy/sell life agreement is a type of contract that business owners enter into with each other. The main purpose of this type of agreement is to bind the owners of a business to buy out the shares of another owner if some specific trigger events occur. The trigger events that typically activate a buy/sell life insurance agreement include the death of one of the owners, Total & Permanent Disabilty due to accident or injury, divorce, voluntary retirement of one of the owners.

Key Person capital protection

Key person capital insurance exists to provide the business with sufficient cash to preserve its asset base (ie, to repay or reduce debts, free up cash flow and maintain credit standing) if a business owner dies or becomes disabled.

Insurance proceeds can be applied to maintain the capital value and stabilise the business. The capital value of a business following the loss of a key person could be reduced through:

The capital value of the business is often determined by profitability and may include a goodwill component. If profitability or goodwill is reduced, the potential capital loss to the business will have a large impact to the overall value of your business.

Financiers usually secure business loans by obtaining guarantees signed by principals, and most will insist on the risk of joint liability of business owners in relation to the loans or overdraft facilities be mitigated with a protection plan.

Key Person revenue protection

Loss of revenue and replacement costs - if there isn't a suitable replacement within the business, it may take substantial time and financial inducement to find and train a successor, let alone restore any loss of revenue during a very stressful time.

Revenue protection can provide your business with liquidity to cover for the loss of turnover and associated replacement costs of key employees or business owner should they die or become disabled.

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