Business Protection Planning Objectives
Alerus | OCT 23, 2017
Alerus | OCT 23, 2017
The sudden loss of an owner or key employee has the potential to disrupt a company, jeopardizing its value and ability to continue operating. One effective way to shield your company – and the employees and customers who depend on it – from this disruption is by going through a careful, thoughtful business protection planning process.
The overall goal of business protection planning can be thought of as having two parts. One is to help you evaluate the impact that the death or disability of an owner or key employee could have on your business. The other is to help ensure that you have the financial tools in place to protect your business from the adverse consequences that too often follow the loss of a key person or owner.
Objective 1: Indemnify the Business for the Loss of a Key Employee
Of all your company’s assets – buildings, inventory, equipment – none is more valuable than the key employees who make everything work. Planning in advance for the loss of these employees, and owners as well, can keep your operation on the rails when there is a death, disability or sudden departure.
When thinking about indemnifying your business for the loss of a key employee, remember that funds may be needed to:
Objective 2: Guarantee Business Loan Repayment
In some forms of business ownership, the company’s owner(s) may have to personally guarantee repayment of business loans. In other words, the lender could look to the owner’s personal assets to satisfy the loan if the company cannot. And, even if a personal guarantee is not required, it is common for lenders to require assurances that the loan will be repaid if the owner dies unexpectedly.
When the objective is guaranteeing the payment of business loans, consider these questions:
Objective 3: Address the Financial Consequences of an Owner’s or Key Employee’s Disability
Illness or disability may stop you from working for a while, but operating costs and day-to-day expenses will keep rolling in. Overhead expenses like rent, salaries, telephone, utilities continue, just at the time when an owner or revenue generating employee is absent.
It is common for owners to want to keep the company running during their disability, but without a source of funds to pay operating expenses, it becomes very difficult. When your objective is to keep the lights on through a period of disability, here are some issues to consider:
Learn About Safeguarding Your Business
When you have questions about safeguarding your business against the possibility of losing a key employee, reach out to Ed Hellier, director of insurance services at Alerus. Mr. Hellier has been helping business owners protect themselves, their families, and their companies for more than 30 years.
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