10 key decisions for business owners
Key decision 6 - What can you do to deal with the unexpected?
Would your business be prepared if a catastrophic event occurred? Do you have a plan to cover the potential loss of a key person through choice or due to serious illness, disability, or death, or to mitigate the consequences of a divorce, which can have a substantial impact on a family business?
Planning ahead can help you limit the damage to the business you have worked so hard to build, and to which you have committed so many resources. Here are some strategies to help protect your business:
Insurance can provide some financial security if you are unable to work or earn an income due to accident or illness. Several insurance strategies may be particularly significant in ensuring business continuity and security.
- Purchase insurance to help you pay overheads and specific expenses for which you will continue to be responsible, even if you are temporarily incapacitated.
- Fund a buy/sell agreement through an insurance policy. It can be a cost-effective way to enable business owners to purchase the shares of a partner or shareholder in the event of their death, disability or a serious illness. This may allow you to take immediate steps to minimize the potential damage by reassuring employees, creditors, suppliers and investors.
- Insure against the loss of a key person. Key person protection can be a cost-effective way to help protect your business against the consequences of losing a critical individual, whether they leave through choice or due to death, critical illness or disability.
- Consider the potential benefits of providing group insurance for your employees. This can be a valuable addition to your compensation structure, help ensure long-term employee loyalty and may make your company attractive to talented prospective employees.
Retaining top talent
Many organizations misunderstand what employees and prospective employees are looking for from an employer. This may be one reason why organizations have difficulty attracting employees with the skills they need.
Analyze the potential business consequences of losing your most talented employees. To retain these valuable people, get to know them, reward them, keep them challenged and engaged, foster a team environment, offer them growth opportunities and provide a comprehensive and competitive remuneration package. These factors may help you maximize productivity and ensure business continuity.
Consider a family business divorce strategy
Divorce can have a major financial and emotional impact on company morale, relationships and business performance. You may be able to minimize some of the negative effects through careful legal, succession and tax planning, but don’t overlook the benefits of a comprehensive family business divorce strategy.
If the family business is the family’s largest asset, a divorce can result in the sale of the business and division of the proceeds between the former spouses. In such a case the valuation of the business is often the central issue.
A valuation expert or appraiser used in a family business divorce strategy can help:
- Resolve divorce issues and buy-out situations, as business partners will have a shared understanding of what the business is worth.
- Achieve agreement on the fair market value of the business by obtaining input from everyone involved.
- Obtain an objective valuation based on the research done.
- Educate everyone so they understand the valuation and how it was reached.
If you plan for the unexpected, you can help your business weather developments that may otherwise have a potentially negative impact.
Scott Donovan, B.A. | Investment Advisor | RBC Dominion Securities Inc. |
T. 519-747-0133 | F. 519-747-1808 | 95 King Street South, 3rd Floor | Waterloo, ON N2J 5A2 |
This article is supplied by Scott Donovan, an Investment Advisor with RBC Dominion Securities Inc. Member CIPF. This article is for information purposes only. Please consult with a professional advisor before taking any action based on information in this article.