There is a lot of emphasis on planning succession and exit from businesses – how to get the best value and what it takes to hand over the control and ownership of your business at a time and method that suits your needs and lifestyle. Statistically, there is a high chance that something unexpected or unplanned for will happen in your life that will change your circumstances or perspective.
Being prepared for the unexpected is part of the early stages of any succession or exit plan. A good start is to have a comprehensive review of your insurance cover – for you, your family and your business. These days it’s simple and cost-effective to get insurance arrangements in place to cover the key people within the business. There are some essential legal agreements we recommend to protect both the business, business owners and operationally critical people.
Typically in a business, the owners/partners would each hold life insurance cover which is partly owned by the business and partly owned by the family. This means that if something was to happen to any one of the owners the business will receive an amount of money which will be used to reduce debts and allow the company to trade on or employ someone to manage it temporarily whilst a long-term strategy is agreed. At the same time, the family would also receive an amount of money which would be payment for the shares they inherit in the business.
For any number of reasons, you may not want your business partner to be in business with your family, if something was to happen to you – they may not understand or want to be involved in the business. And your business partner(s) might feel the same!
Legal agreements can be put in place to ensure that, once any insurance monies are paid out to all parties, any shares that are held in the business are immediately transferred to your business partner(s) and your family involvement ceases. Certainly, in my case I would not want my family to be burdened with being involved in a business they don’t understand, and I wouldn’t want my business partner to be worried about (or by) my family.
With the right legal agreements in place, if something was to happen to me, my business partner becomes 100% owner and controller of the business with funds injected into the business to cover any short-term issues and repay some debt at the same time. My family receive the proceeds of an insurance policy which roughly equates to my shares in the business. The most comforting thing about this arrangement is that it removes the uncertainty and stress of having to deal with all this at a difficult time anyway.
The right insurance cover and the legal agreements that support it are not overly expensive and are fairly simple to set up if you have the right advice. I am still surprised by how many business owners have more insurance cover and legal documents for their house and car than their main asset, their business. If your business is your pension, then maybe it’s time to start protecting it just in case the unexpected does happen?
