Optimizing risk and reward for business owners

Business owners have a significant opportunity to build financial security for themselves and their families. The trick is to maximize this opportunity while also minimizing risk.

For example, if you have an employee who is critical to the success of your business, what would happen if they passed away? How could the loss of a major shareholder affect the ownership structure of your company? And down the road, how can you maximize the after-tax value of your business for your heirs?

Cover a key person

The first thing a small business owner should address is ensuring that the passing of a key person will not disrupt, or even destroy, the operations of the business. A key person could be the founder of the company, whose intimate knowledge and vision is irreplaceable. Maybe it’s a sales person, the loss of whose relationship skills would mean the defection of important customers. Or maybe it’s an employee with unique skills that are fundamentally necessary to the business.

There may not be a way to avoid the risk of losing a critical employee, but insurance can at least hedge this risk by ensuring you have enough funds at the right time to locate a suitable replacement, bring them up to speed, and sustain the company’s financial health.

Maintain your ownership

What if the key person who passes away is also a major stakeholder in your business? It’s wise to have a buy-sell agreement in place that allows the surviving partners to buy the deceased’s ownership and maintain control of the company. However, according to Rob McGavin, Head of Insurance for ScotiaMcLeod, it’s not always that simple:

“The question is how will the partners afford to pay for the deceased’s share at precisely the time they are required to do so? They could try saving in advance, but nobody knows exactly when the money will be needed, or how much. Borrowing is another alternative, but the loss of a partner could make it difficult to obtain or afford additional credit. Selling business assets might work, but this could also harm the business, or force the partners to accept poor value for the assets.”

The solution is often life insurance because no other vehicle will deliver exactly the amount of money you need at exactly the time you need it, and the costs can be minimal compared to the other options.

Protect your legacy

Life insurance can also be a solution to the problem of capital gains tax owed by your estate upon death. Rather than forcing your heirs to deplete corporate assets – or even sell the business – to pay the tax bill, you can make sure they have adequate life insurance proceeds to cover this need. A variety of insurance-based strategies can ensure that you control the destiny of your business.

Create additional wealth

Not only is life insurance a tool for managing risks and protecting your assets, it is a vehicle that can provide tax-sheltered growth and deliver a tremendous after-tax value for your family. You can also create unique incentive programs for employees using various insurance strategies. For example, you can offer them the potential to use the cash value of a policy to secure retirement income.

Whether you want to enhance your retirement income, reduce taxation, or simply maximize your legacy, there are strategies available that will fit within your overall financial plan and give you, your family, and your business partners greater peace of mind.

Update your business plan

If you’ve worked hard to build a successful enterprise, it makes sense to treat its financial protection just as seriously as its financial growth. The Butler / Laing Group has the knowledge, resources and team of experts to identify the specific opportunities and risks surrounding your business, and recommend solutions that will protect your assets and help you achieve your goals.  Contact us at (604) 535-4749, or use our contact page.

Protecting your family and your business

If you are a business owner, your focus is likely on the long-term viability of your business. Decisions you make today may impact your business tomorrow and thereafter. Think back to the last time you made a major purchase for your business. Before making that decision, you probably examined all your options and evaluated the costs and benefits of making the purchase.

When it comes to personal and business financial planning, the same forethought is warranted. Have you ever evaluated the costs to the business if you were no longer involved in it? A long term disability, diagnosis of an illness or death could have a devastating effect on your business, not to mention your family.

Putting your family first

If you have a spouse or children who depend on your income, you must consider what would happen if you were no longer able to run your business. Insurance provides a safety net that can help ensure your loved ones will retain a comfortable standard of living in the event of your death or disability or diagnosis of a critical illness.

Protecting against the loss of a key person

To maintain its success, your business relies on the leadership, experience or skills of one or more individuals. That person could be you, your business partners or a few key employees whose absence from your company could lead to its demise. Key person insurance can provide important financial assistance to your business after the loss of a crucial individual.

Funding for a buy-sell agreement

If you have business partners, you may have a buy-sell agreement in place. This document outlines what should be done in the event of the death, disability or retirement of one of the shareholders. If this agreement requires the partners to acquire the shares of a departed associate, how will they afford it? Insurance can provide a timely funding solution for buy-sell agreements.

Creating a succession plan

Your hard work and determination – coupled with your family’s support – has helped you build your business into the success it is today. If you want your family business to remain a family business after you’re gone, you need to address the impact of corporate and estate taxes on the value of your estate. Insurance can provide solutions to keep your success in the family.

Minimize tax

When setting up an insurance strategy, it pays to consider whether the policy should be personally or corporately owned. If your business qualifies, you may have the opportunity to pass the proceeds of a corporately-owned policy through the Capital dividend Account (CDA) on a tax-free basis.

The Butler / Laing Group has the knowledge, resources and team of experts to assess your insurance needs, and create a forward-looking strategy to protect your wealth today and tomorrow, giving you and your family greater peace of mind.  Contact us at (604) 535-4749, or use our contact page.