| Circumstances for Business Planning
The success of the business often depends on the talent and experience of one or a few owners and/or key employees who possess characteristics including the following:
- Having a specialized skill critical to the success of the particular business and that skill may be possessed by potential replacements, but replacement might have to be joined at a higher cost.
- Having a substantial customer or client base, and been responsible for attracting significant amounts of business.
- Having a source of capital if the loss of him or her would damage the credit rating of business
The loss of his or her services due to death or disability will probably result in BUSINESS CONTINUITY PROBLEMS to an organization and or to the surviving owner(s) and to the heir(s) of deceased owner that might lead to the worst, Business Termination.
To Organization
- Loss of income, i.e Sales Revenue
- Increased expense, i.e. higher salary, cost for training, double payment for salary continuation to the disabled person successor who are not actively participated in the daily operation and to the replacement.
- Operation Inefficiency
- Lower Productivity
- Unexpected status of the business
- Conflict between successor owner and surviving owner
- Shrinkage of Assets in case of unplanned buyout
- Downgrading Goodwill
To Surviving Owner, Deceased Owner and Heir
- Loss of Family Income
- Disappointing yield on forced liquidation / unplanned sale of stock
- Loss of Interest in continuing business
- Disruption of Surviving Owner’s careers due to Business Selling by heirs to outsiders
- Estate Shrinkage
- Income Tax Burden
- Conflict of Interest between active participated and non-actively participated family members
To Surviving Staff
- Loss of sense of belonging due to uncertainty about the continuity of the company
- Salary Reduction due to drainage of cash for unplanned BUY-SELL
- Loss of Job in case of Business Termination
Advantage of Prearranged Buy-Sell Planning
- Guaranteed market for the business interest
- Enhanced Certainty in business continuation as on-going concern
Key for Success of Buy-Sell Agreement
- Adequate and Reliable Source of Funding dominances the success of Buy-Sell Agreement.
Funding Mechanism to Business Planning
- Insurance is viable funding alternative to BUY-SELL AGREEMENT
- By Life Insurance for Buyout & Retirement Need
- By Disability Income Protection Insurance for Salary Continuation Payment & Disability Buyout
Advantage of Insured Buy-Sell Agreement
- Certainty: Maximum degree of Certainty to the Buy-Sell Agreement since Insurance is self –completing as a funding mechanism.
- Low cost to fund mortality risk and the probability of long term disability
- Results in favorable income tax treatment
|
