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Life Insurance
Small Business Planning: Ensuring the Continuation of Your Business
By Max Brann
Financial Advisor, Brann Financial Services
You hope your small business has become a reflection of yourself: it’s an efficient, dependable and well-run operation that follows through on your customers’ wants and needs. But what would happen if a change in ownership was necessary, perhaps due to unmanageable costs or even the death of you or your business partner? Could the surviving partner pay for unforeseen expenses? Could the business retain its employment base?
Whether your company is just emerging, flourishing or maturing, your business and personal financial needs are unique. But sooner or later, most small business owners ask themselves three basic questions:
How do I prepare for the problems that come with changes in ownership?
As the owner of my company, is there a way to use business dollars to pay for some personal expenses?
Am I getting the most I can out of my employee benefit dollars?
Each of these situations can be dealt with through adequate business planning.
Strategies for Changes in Ownership
If you or a business partner died, it would be comforting to know now that your business would continue to run smoothly. There are several options to ensure its continuity.
One method is a buy/sell agreement. This establishes the value of your business and assures a ready market for your share in the business after the death or an owner. With life insurance funding the agreement, the surviving partner(s) are assured of the means to buy out heirs and retain control over the business, and the deceased owner’s stock can be converted into cash for the heirs.
If you should lose a key employee, you may lose considerable time and money trying to find and train a replacement. Key employee life insurance provides you with the funds you need to keep the business running smoothly during this difficult period.
Another option is to carefully incorporate your business needs into a total estate plan. This way you’ll avoid severe liquidity problems for the heirs of your estate after you die. At the same time, you’ll be able to meet your estate tax and liquidity needs while you preserve the full value of your business for your family and business associates.
Using Business Dollars for Personal Expenses
There are also ways to provide benefits for yourself by using your business’ checkbook. The fact is, you can actually pay some of your personal expenses using your business’ money, and receive favorable tax treatment at the same time. Your business can help you pay for your own life insurance by “advancing” you money to pay the annual premium. The cost is low and the advance is paid back from the insurance proceeds. This benefit can also be extended to your key employees.
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