Business Succession Planning

We encounter risk everyday throughout our lives and running a business comes with its own set of risks. It is important to note however, that this risk can be easily minimised through prudent planning and preventative action. A risk management program will ensure that you are prepared for unforeseen events so that any cost impact to your business is minimised.

Whatever type of business you are in, it is essential to protect yourself from the unexpected. Every business with two or more owners should consider what might happen to the business if one of the owners dies, becomes totally and permanently disabled or suffers a terminal or traumatic event.

Often businesses rely on a few key people to generate the profits, provide the capital or manage the business. If you do not have a plan, significant consequences could result for the remaining business owners as well as for the surviving family members.

Strategic Prosperity Group will help you to consider the following business risk strategies:

  • Buy-sell insurance (asset or equity)
  • Debt reduction or guarantor protection insurance (liability)
  • Key person insurance (liability)

Establish a Will for your Business

A Will can be established for your business by creating a Buy / Sell Agreement. This is a legal contract which can facilitate the orderly transfer of a person’s share in a business to the remaining owners when certain trigger events occur (such as death or serious disability).

The agreement should provide a mechanism whereby the terminating business owner (or his or her estate) can sell their interest in the business to the remaining owners and the continuing owners can purchase the departing owners interest in the business. The end result is that the exiting owner (or their estate) receives adequate financial compensation for their share in the business and the remaining owners can carry on the business with minimal interruption.

To fund the transfer, the agreement normally uses life insurance so that sufficient capital becomes available to buy out the departing owner’s share in the business.

Key Person Insurance

The loss of a key staff member can have a substantial impact on profitability, operational management and the goodwill of your business. In some cases, businesses find there are no suitable candidates readily available within the organisation and it can take substantial time and money to recruit and train an external replacement.

By covering your key person, you can help fund the loss of a valuable employee by providing an injection of cash for revenue or capital purpose and help keep the business momentum going.

Debt Reduction or Guarantor Protection

Debt reduction or guarantor protection is a form of business insurance which is triggered in the event of an insured incident occurring with respect to a director/guarantor. It is used to safeguard business owners and guarantors from the significant financial consequence of providing a guarantee on a loan and then an event occurs which makes it difficult to meet the liability obligation.