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As a business owner, you know what it’s like to lie awake at 2 a.m. Maybe it has happened when you are excited and full of new ideas for your business. More often, it’s because you are worried about issues you will face the next day. Sometimes, it’s because you just woke up with the solution to a problem. I’ve experienced all those emotions about my businesses over the years. Awake at 2 o’clock? is where I share them with you, and hopefully help with answers that will let you sleep.
John F. Dini, CExP, CEPA
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Small business owners are the Hunters of the 21st century. We are 3% of the US population, and yet we create over half of all American jobs. As Hunters, we may not be inclined to manage by the numbers or stick to systems. Are you a Hunter or a Farmer?
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How prepared are you to exit your company?
The Assessment breaks down the four major categories of exit readiness; Finance, Planning, Operations and Revenue/Profit.
Tag Archives: financial
7 Responses to Key Man Policies May Not Cover a Buy/Sell Agreement
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Should a Small Business Have a Budget?
“I know that my company is doing OK,” the old joke goes. “I still have checks in my checkbook.” Many small businesses run on a version of checkbook accounting, where anything that isn’t paid out at the end of the … Continue reading
4 Responses to Should a Small Business Have a Budget?
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I found in my consulting practice that the small businesses that have the discipline to create a budget also have the discipline to manage their business well. It is a way to the business perspective to pro-active instead of reactive.
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Extremely important if a business offers healthcare to employees. “Life changing events” include a spouse who loses coverage and now enrolls in your family plan.
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I agree, every small business must have a specific budget for their marketing campaigns. A successful business always start from planning to budgeting, to planning and implementation.
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In every business there should always be a budget.
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What is Your Company Worth?
A business owner hires a financial planner to help him with his retirement options. They review the owner’s current assets, his house, stock portfolio and other investments. They go over his insurance coverage. Then the planner asks, “What about your company? How … Continue reading
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Left Behind
As business owners, most of us understand that the people who help us get our company to one level may not be the folks who can get it to the next. A great salesman may not be your next sales … Continue reading
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Is It All About the Money?
If you have more than ten employees, and an outside observer (like me) asks them confidentially to say in one word what their boss cares about the most, what do you think they will answer? We’d like to think that answer … Continue reading
John
Another “Wide Awake Article” – To be advised is to be prepares, and you continually do that.
Always look forward to the next !!!
Thank you
Frank
John,
Agreement that key-man insurance policies should be separate from buy/sell – ownership agreements. Having lived through the unexpected loss of two employees, I would encourage small businesses to look beyond ownership when considering key man insurance as part of their disaster planning process.
Brad
Another type insurance to consider is whole life purchased using Section 79 Insurance.
Allows the company to pay for the insurance ( deduction to the company) owner pays tax on only part of cost, however beneficiary is the stock holders estate ( or wife) .
Company pays for policy , stockholder owns and benefits from it directly.
Can tied funding this to some part of stock valve in the future.
John- My 43 years in the life business has taken me into many areas of practice. The usual KEY MAN POLICY is usually designed for one purpose only.It is to cover the loss of a “Key Man” such as a top salesman that brings in more than 50% of the companies business or an engineer or project manager that a company could not operate or complete a job if they should die. Buy and Sell agreements are usually to cover owners , partnerships or corporations for death or long term disabilities to owners or stock share holders to keep the business from imploding or having to deal with non producing spouses or minor corporate owners.All these plans should be drawn up by a law firm that is experienced in Business Law! not Legal zoom! The last thing is making sure that the agreements are funded with the proper products to meet the contracts specifications in the B&S agreement. I would shy away from Sec 79 plans in funding these agreements and look at the latest IRS rulings on SEC 79 use in business insurance? Comments Welcome! RICH FREELAND CBC
Thanks Richard. I agree that key man policies should be used for critical employees as well. I know dozens of companies, however, where key man covers the owner, who does not function in a sales or client management role, and the owners’ belief is that the benefit will be used to purchase stock from their families. As to the applicable IRS codes, you illustrate my point that such instruments must be carefully constructed by a professional such as you.
A key man insurance policy is different from a buy sell insurance policy. You hit the nail on the head. The purposes are different.
The trick is to get the business owner to planning table. In my 34 years of selling life insurance and disability insurance there is a significant resistance by small business owners to approach the topic. The vast majority of small business owners do not have these plans in place. It is even more critical for family businesses. I completed a large plan for a family business in 2004, the business was started in 1946. Good luck to all the life insurance purveyors out there. It’s a mine field.