For small business owners, there are many immediate priorities to deal with on a daily basis and it is hard to make time for longer term planning. However, if you are in business with someone else and you are both key to the normal running and success of your enterprise, have you considered what would happen if one of you were no longer able to continue working due to ill health or death?
I saw this first hand a few years ago when I met one of the directors in a small manufacturing company whose business partner had died suddenly. As well as grieving the loss of a long time and close friend, he was placed in the position of having to continue to run the business profitably on his own in order to support two families. He did not have the funds to buy out his partner’s share of the company and his partner’s widow was unable to come and work in the business with him.
An approach to protect against this situation is a legal agreement between the business owners (called a buy/sell agreement) backed by suitable insurances. The structure of both components will vary depending on each particular set of circumstances for example:
- Whether the business would also cease if one partner could not continue,
- Whether the continuing partner would want to go on alone, but would need to buy out the share belonging to the other partner,
- Whether the business would continue as is, but would need to hire an additional employee to replace the missing partner.
A strategic financial planner can help you to think through your options and to structure the best solution for you that takes your cash flow and other implications such as taxation into consideration. They can then liaise with relevant legal and other professionals as required to put the solution in place.
A fee for service financial planner can also recommend suitable insurance policies for you free from the influence of potential commissions.
© Summation Strategies 2016.
Please note that all information provided is of a general nature and does not take into account your current financial situation, needs or objectives. Before acting on any of the information you should consider its appropriateness, having regard to your own objectives, financial situation and needs. We recommend those seeking insurance or making an investment obtain financial advice specific to their situation and consider the Product Disclosure Statement prior to making any financial investment or insurance decision.