FINANCIAL PLANNING – You were hit and killed last night. How does your business look today? Will it keep running now that you’re no longer around to oversee it? Are your business, business associates and family facing a chaotic mess?
That all depends on whether or not a business owner or partner has planned for an eventuality like this. Here’s what could happen if you’re not prepared:
- Without a will your provincial government could determine what happens to your assets, including your business.
- Without the proper insurance, your business can go under due to lack of funds.
- Without a shareholder agreement in place, your spouse could now become a partner to the business.
For these reasons and a lot more, you should have a carefully crafted, and legally binding, shareholder agreement that documents exactly what you and your business partner wants to happen should you or your business partner die.
And yet, fewer than 30 per cent of small-business owners have a written succession plan, and many don’t have insurance either. Why? Because owners don’t want to think about what might happen if they suddenly pass away. But they should.
While a plan should be tailored to the business owner’s specific circumstances and objectives, there are common elements that require consideration, especially around insurance needs.
Key Person Insurance: It’s an insurance policy typically taken out on the owner. If the key person passes away, the company gets the proceeds from the policy to keep the business running.
Buy-Sell Insurance: With Buy-Sell Insurance, when a shareholder passes away, money gets distributed to the other partner to purchase their portion.
Business Loan Protection: This kind of insurance provides funds to settle any outstanding loans or mortgages.
Also, if you’re injured and unable to work for a long time, consider taking out a disability and critical illness insurance.
Clearly, succession planning and insurance coverage is absolutely necessary to maintain the value of your business, provide financial security for your family and other stakeholders, and provide for the unexpected. Talk to a professional advisor, accountant, lawyer or insurance broker to find out how best to protect your company.
This column, written and published by Investors Group Financial Services Inc. and Investors Group Securities Inc. presents general information
Stephen J. Struthers, is a Senior Financial Consultant with Struthers Wealth Management at Investors Group Financial Services Inc. Email: stephen.struthers@Investorsgroup.com