You’re running your business. No time to do this, no time to do that but have you thought of everything you need to think of in protecting your business. Is your business protected from all perils and situations?
If you or your business partner had a major health issue how does the business continued to run if either can’t work?
If you or your partner wants to leave the business or retire are you able to do that and accommodate the other with their value in the business?
How about divorce how does that affect your business?
What’s is your legacy for the business, keep it a family, sale to an employee, sell to a third-party?
A lot of questions I know but have you considered any of these? Do you understand any of these situations and what it takes to address them? the following will give you some idea of what goes into making these types of decisions.
View this video, it provides an understanding of the many aspects of business preservation.
Here are some key terms and definitions related to this topic:
Tax planning -Tax planning is the analysis of a financial situation or plan from a tax perspective. The purpose of tax planning is to ensure tax efficiency. Reduction of tax liability and maximizing the ability to contribute to retirement plans are crucial for success.
Business Preservation – and protection is the first stage: Helping to ensure protection against unexpected pitfalls.
Risk Mitigation – The four types of risk mitigating strategies include risk avoidance, acceptance, transference, and limitation. Avoid: In general, risks should be avoided that involve a high probability impact for both financial loss and damage.
Business Continuity – the planning and preparation of a company to make sure it overcomes serious incidents or disasters and resumes its normal operations within a reasonably short period. Recovery: arrangements have to be made to recover or restore business functions that fail for some reason.
Best practices for business preservation is absolutely critical. Below are a few financial mechanisms that can prepare your business and preserve if any of the above situations take place.
Buy Sell Agreements – A buy and sell agreement is a legally binding contract used to reallocate a share of business if an owner dies or otherwise leaves the business. Also known as a buy-sell agreement, a buyout agreement, a business will, or a business prenup, buy and sell agreements are used by sole proprietorships, partnerships, and closed corporations to divide the business share or interest of a proprietor, partner, or shareholder.
Key Person Coverage – A company purchases a life insurance policy on its key employee(s), pays the premiums and is the beneficiary of the policy. If that person unexpectedly dies, the company receives the insurance payoff.
Risk Transference – a risk management and control strategy that involves the contractual shifting of a pure risk from one party to another. One example is the purchase of an insurance policy, by which a specified risk of loss is passed from the policyholder to the insurer.
Business Succession – A succession plan is a written document that provides for the continued operation of a business in the event that the owner—or a key member of the management team—leaves the company, is terminated, becomes incapacitated, retires, or dies.