As an insurance advisor to privately held business clients, it is critical to revisit the topic of success planning every 3-5 years, specifically as it pertains to their disability repurchase obligations as they are often overlooked. Your clients have the grit and tenacity to build their business and it might be hard for them to find room for things that have yet to happen. We've shared four key questions that are proven to open the conversation with clients and begin the succession planning process:
Question 1: Do you know the value of your business? The value of your client's business is an integral part of effective planning, but many owners have never had their business valued. For businesses valued at $5M or more, there is a void that requires a specialized approach to insure buy-sell disability funding requirements.
[Whitepaper] Unprepared for the Unthinkable
Question 2: Do you have a buy-sell agreement? Many business owners utilize buy-sell agreements to establish a succession plan in the event a partner dies or becomes disabled. There are many benefits of a buy-sell agreement, mainly it helps identify a buyer, protects your client's spouse & heirs, and determine a sale price.
Question 3: Has your agreement been impacted by any change in the value of your company? Or have you added/subtracted any partners? We recently were asked to insure a commodities firm whose business was rapidly expanding. As a result of the rapid growth, the CEO's share value increased by 250% since the last buy-sell agreement. It was determined by the board of directors that the disability buy-out exposure would cripple the company should the CEO become disabled.
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Question 4: Without a buy-sell agreement, did you know that you could go into business with your partner's spouse in the event they die or become disabled? This question should stop your client in their tracks. Succession planning preserves what entrepreneurs and executives value the most and why they're in business: control. Control of one's destiny, control of the business, and control of the future. Taking a chance on becoming disabled or dying are things business owners can handle, but the possibility of losing control may be a far greater threat.
Most closely held businesses are highly dependent on the vision, relationships and knowledge held by their owners. Entrepreneurs create a foundation of human capital that drives the success of the company. For these unique individuals, death and disability is all but certain to end in disaster for both the company and shareholder's family when they have poorly designed and funded agreements or no agreements at all. Start the conversation with your business owner clients today with these four questions.
And schedule a meeting with our business development team here to learn more about High Limit Buy-Sell Disability.