Succession Plans, Specialized Insurance Programs Protect Your Small Business

05/10/2022 Written by: Jenny Boudreau

The Small Business Administration estimates that in the next 10 to 15 years, about 70% of privately owned businesses will exchange hands. Estimated to be worth $10 trillion, this exchange represents an historical transfer of intergenerational wealth.

How these transactions will occur will depend on the type of planning done by these business owners. A comprehensive plan put in place well in advance will ensure the business can continue operating and retaining key employees.

A variety of programs exist for a range of business applications, from guarding against the loss of key employees to protecting the future of the business and personal wealth. Some of the most common programs include:

Succession planning

When a business owner is unable to work or retires, the future of the business and its employees can come into question. Succession planning arrangements help ensure a smooth transition between current and new business ownership.

Buy/sell agreements

A predetermined plan to sell a business if the owner retires, becomes disabled, or passes away, buy/sell agreements provide the business with financial protection and ensure business continuation, despite the absence of an owner. The plan is typically funded through life insurance and provides immediate cash upon the death of an owner. The agreement also helps establish a fair selling price and maintain the company's long-term financial objectives.

Disability insurance

When you lose the ability to work and earn an income, lost wages could result in the need to use investments, savings, or retirement assets to fund living expenses. For business owners, the stakes are higher because their presence may be crucial to the company's ability to operate. Disability insurance protects business and personal assets, providing comfort that cannot easily erase all you worked so hard to build.

Key person insurance

Key person insurance protects businesses from the adverse effects of losing essential personnel—specifically, employees with particular expertise or earned credibility with customers, vendors, or creditors. At death, the life insurance policy provides funds to help recruit and train new staff, replace lost profits, and strengthen the company's balance sheet to help assure creditors and suppliers about the continuity in the business.

Deferred compensation

Another tool employers can use to attract, retain, and reward key employees: non-qualified deferred compensation. This employer-provided plan can be offered to a select group of executives or employees. Simply stated, the employer and employee enter into an agreement using insurance to defer a portion of the employee's income until a future date.

With so much at stake, it's crucial to work with an experienced advisor who can help businesses of any size be better prepared for the future. Contact AssuredPartners Investment Advisors to learn more about the small business programs available.

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