The Partner That Ruined the Business

timthumbIf you have a business with a partner or partners you need a fully funded buy sell agreement. It should be set up before any partners pass away, become disabled or find out they have cancer, diabetes, or other ailments that can limit workable solutions. Doing so is not only cost effective but it provides peace of mind.

Why? Do you want your current partner’s spouse and children as your new business partners? Nice enough people, but are they qualified and willing at the drop of a hat to run the business?

Moreover, what will happen to the value of the business if something happens to a partner? A business valued at $5 million can quickly drop to $2 million without proper planning.

Then what happens when a partner passes away, the estate is valued incorrectly and the IRS comes looking for more then what was paid in estate taxes by the heirs? I’ll tell you. Litigation with the heirs.

And of course, divorce never happens to business owners. In all of these scenarios, doing nothing ahead of time is a bad business decision. I can’t tell you how many calls I’ve made to owners who don’t have fully funded agreements. They’ll say, “I’m all taken care of.” But when you look at what happens to many businesses after a life event, you realize they were just blowing me off.

The real blow off was on them. They blew off serious business planning they never even thought about because they were busy running the business. Fair enough. But they can’t do that or bury their heads in the sand because they still need to address the complex issues that arise when life events happen. Otherwise, like it or not, a business may be forced to close.
The main reason owners want to have the agreement fully funded is because for most businesses, using cash on hand, a sinking fund or financing through a bank loan may be undesirable or unavailable as a solution. Therefore work with the right team to provide the best funding solution.

Now after you set this up, get back to marketing and selling!

 

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The Power of Distribution

Global communicationsOne of the overlooked and sometimes challenging parts of a business is its distribution. But it is vast and efficient distribution that can propel a business and its owners to phenomenal success. Whether the product or service is computer software, oil, institutional money management or popular entertainment, distribution is what allows the owner and manager to achieve great financial success.

With each of these businesses they are able to take a product or products and put them into a network that can have millions of individuals support the products or services at approximately the same time.

Software firms distribute through online and offline retailers. Money managers use money from large retirement plans for civilian employees and entertainment providers use online and offline distribution networks as well.

So as business owners look to grow their business, a focus on distribution of that product or service may be challenging but a search that none the less can bear profitable fruit.

 

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Keeping The Dream Alive

older-black-businessmanJerry runs Regal Printing, a successful print shop (C-corporation), he started 25 years ago. He has two employees, but he and his wife are sole owners with all management and decision making responsibility.

Jerry and his wife, Elizabeth, pooled their savings to get the business off the ground and have spent their lives nurturing it. It is by far their largest asset. Their oldest daughter is very active in the business, but their other two children are too young. Will any of their three children run Regal Printing some day? Or perhaps one of their key people? That depends.

Ninety percent of the 21 million U.S. businesses are family owned. Yet only 30 percent of family run companies today succeed into the second generation, and only 15 percent survive into the third (Source: SBA.gov). Business continuation planning can be difficult for your clients, especially with all the day-to-day problems that need immediate attention. But, lack of planning can be devastating. Most likely the 30 percent of businesses that do make it, make it because their owner planned for the orderly transfer of the enterprise.

Jerry and Elizabeth’s situation is common. A family business is often the owner’s major asset. The death or disability of a business owner who is usually the key to the success of a business can seriously damage the business’ value. Good planning can substantially minimize these risks.

Let’s take a look at why some owners plan for business continuation while others do not, the methods and tools to transfer business interests, and how to begin developing a plan.

“Business continuation” planning simply means planning for the transfer of business ownership and management from the current owner to someone else. There are a number of good reasons why owners should plan for the transfer of their businesses, such as avoiding the business passing to under-qualified owners, protecting key employees or raising cash. However, most of the time the planning is done simply to “keep the dream alive” and ensure the business extends beyond the owner’s lifetime as in Jerry’s case. Few business owners work for a lifetime only to consciously decide to let their business dissolve when they’re no longer able to manage it.

Every business owner should consider having a buy-sell agreement to ensure the continuation of the business and to protect the owner and his or her family.However, owners frequently don’t know what they want to do, nor do they understand the various options open to them. Buy-sell agreements work no matter what form a business takes: sole proprietorship, partnership, limited liability corporation, C corporation, or S corporation.

Beyond taking that all-important first step and getting the agreement set up, having the dollars available to make the transfer happen is also key. Generally, the most convenient and thorough method of funding the buy-sell agreement is through life and disability income insurance. Buy-sell agreements funded with life insurance offer these benefits:

  1. Creation of an exit timeline
  2. Determination of a value for the business
  3. Liquidity to support the family
  4. Identification of a transferee

Clearly, a buy-sell agreement best protects owners and families if arrangements are made prior to death or disability. And, funding the buy-sell agreement so the dollars are there when needed is essential. There are a myriad of disability and life insurance solutions for this problem. It’s never too early to plan for the continuation of your business. To get started, ask yourself some general questions:

  •  Why do you want to plan for business continuation, and what do you want to accomplish?
  • When and how do you want to transfer your business?
  • Who are possible candidates to own your business?
  • What do you consider an acceptable value for your business?
  • What problems could arise in the continuation process?
  • Who is available to help you?

First and foremost, assess your business continuation situation carefully so your plan accomplishes your goals. A buy-sell agreement funded with life insurance or disability income insurance may offer some answers to keep the dream alive!

 

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