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:

• Replace lost profits.
• Locate, recruit, hire, and train a replacement.
• Ensure financial stability during the adjustment period following the key employee's death/disability.
• Provide benefits to the deceased employee's family.
• Purchase a deceased owner's share of the business.

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:

• Do you currently have any outstanding business loans, and if so, how much?
• When your business borrows money, do you have to sign once or twice?
• What would be the consequences to the business of having to repay loans after your death?

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:

• What are your monthly overhead costs?
• How would the business continue paying these costs if you were absent?
• What would be the cash flow impact on the business if it needed to continue paying the salary of a key employee or owner who was disabled for a period of time?
• What income/assets would the disabled person live on during his/her recovery time?

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.

Insurance products are 1) Not FDIC insured 2) Not guaranteed by bank and 3) May lose value

_{Insurance services are offered through Alerus Securities Corporation, a wholly-owned subsidiary of Alerus Financial, N.A. Member FINRA/SIPC.}