Business Continuity Challenges for Sole-Owners
When advisors hear the words “business continuity planning,” their thoughts immediately turn to buy-sell agreements—the topic of a future article where we will dive into buy-sell agreements and suggest several seldom-discussed opportunities for advisors. Today however, we describe planning and engagement opportunities with sole owners—those without partners or co-shareholders. These opportunities are far greater than you likely imagine.
Advisors typically pay little attention to the continuity needs of these sole owners perhaps because there’s not the simple and obvious solution of creating and funding a buy-sell agreement.
The Size of the Market
It may surprise you that solely owned businesses comprise almost one-half of all businesses with fewer than 100 employees, so the financial/insurance advisors who have business-continuity knowledge, tools and products have an amazing opportunity to help.
The Problem
Most sole owners do little or no continuity planning with a predictable result: If they die before leaving their businesses voluntarily, their companies collapse, leaving their families holding bankrupt businesses and personally guaranteed debt.
The Question
How do you address business continuity for sole owners? If you don’t have a great answer today, the good news is that, with BEI’s help, you can use your products to craft some great solutions.
Let’s begin with the challenges sole owners face if they die or become disabled.
Fact #1: The important employees—the ones capable of running a business—recognize that the business they work for is unlikely to survive without its owner, so they quickly seek and obtain new employment.
Fact #2: Unlike co-owned businesses, solely owned businesses generally fail quickly after the death of their owners. Any personally guaranteed debt and other liabilities transfer to the deceased owners’ estates. When this happens, it’s not unusual for estates to go into bankruptcy.
Fact #3: Usually, owners do nothing to address the effect their deaths will have on their families because they don’t know that there’s anything they can do. And neither do their advisors, if asked by their clients.
Unaddressed challenges not only create a huge business opportunity for you, but they also provide the personal satisfaction of offering a hugely valuable service to your sole-owner business clients and their families.
The Solution
Over the years, we’ve given a lot of thought and attention to how advisors can help ensure the continuity of a business (if possible) or, at least, sustain it long enough to facilitate an orderly liquidation after an owner’s death.
Some of the solutions we’ve developed for BEI advisor-members are:
1. Stay Bonus plans for important employees.
2. Business Continuity Instructions (BCI).
3. Insurance funding to address debt and other financial liabilities.
4. Longer term plans that identify key employees, then motivate them to perform and stay with a company. A high-performing management team can eliminate the dependence of a business upon its owner thus positioning a business to continue.
Let’s look at a few of these in more detail.
Comprehensive Business Continuity Instructions
If an owner dies or becomes incapacitated, Business Continuity Instructions (BCI) play a critical role in a successful business transfer or liquidation. Instructions give managers, advisors, and family members guidance on what to do, whom to call, and how to delegate responsibilities. Our members use planning software to create comprehensive business continuity instructions.
Insurance-funded Stay Bonus Plan
When crafted properly, Stay Bonus Plans encourage a select group of important employees to stay with the business if its owner dies. Again, our members use planning software to create the Stay Bonus plan.
Insurance Funding
Once you conduct a review of a company’s liabilities and expenses, as well as any personally guaranteed loans or other obligations, you can ascertain the amount of life insurance needed to satisfy these obligations. Many member-advisors use irrevocable life insurance trusts to protect insurance proceeds from creditor attack.
Owner Education
BEI provides its member-advisors with a continuity-needs assessment as well as informative newsletters and White Papers that focus owners’ attention on 1) the consequences of doing nothing about continuity; 2) possible solutions; and 3) how you can help.
Advisor Training
BEI’s intensive training course for advisors (Owner-Based Planning) provides the information about the tools you need to address the needs of your sole-owner clients (both current and prospective). For more information about how you can help sole owners grow and protect their businesses, we invite you to join our next training on April 24 and 25. You can get more information below.
