Let’s face it, it’s hard enough being a business owner as it is, and if another owner or other vital person to your business was to get sick, become disabled, or pass away unexpectedly, you would need to have a plan in place that allows your business to continue to operate.
As an owner, you want your business to continue on no matter what happens. You’ve put your blood, sweat, and tears into it - it’s your legacy and, should an unfortunate event occur, a business continuity plan should be anything but an afterthought.
When creating a business continuation plan, the right insurance policies are truly key. Through a buy-sell agreement, having a determined path of ownership, along with life insurance for those vital to business operations, you can be sure your legacy will continue on regardless of any unforeseeable event.
With a buy-sell agreement in a business with two or more owners, each owner is basically purchasing a policy on the others to ensure that if something happens to one of them, there’s a clear path as to what happens next.
There are two main types of buy-sell agreements that can be funded by a business life insurance policy: an entity-purchase and a cross-purchase plan.
The entity-purchase plan is basically where the company takes out an insurance policy on the owners. Basically, the business is the beneficiary so in the event that there’s a life insurance policy in place and an owner or stockholder passes away, the business buys back its own stock.
A cross-purchase plan makes it possible for business owners to know that should a partner exit, there’s a clear and determined path for ownership. The document indicates how the shares can be divided or purchased by the remaining owners. This means the partner who leaves can’t sell their shares to a complete stranger who has no knowledge of the business.
A major portion of business continuation insurance is key man insurance. This type of insurance is crucial for anyone who’s vital to the operation of the business and will create a huge financial void if something were to happen to them.
Despite whether they were an owner, manager, or in another role, if they were to pass away, this policy would cover the amount needed to go out and find somebody to help fill that void.
For instance, if something were to happen to the only dentist at a dentist office, this policy, whether it’s a disability policy or life insurance policy, would provide the funds to help hire another dentist to come in and treat the patients.
When unforeseen events occur to those who’ve become invaluable to your business, without a solid plan, the company can suddenly become extremely difficult to operate. Especially when you have multiple stakeholders, you can imagine how complex the financial aspects become.
Business continuity insurance should be put in place on the front end, not an afterthought. If something were to happen, it's essential to have the necessary insurance in place to ensure the business can continue to operate with as little disruption as possible. And that’s not easy to do when losing the contributions of a key player in your business.
Byars|Wright, Inc.. is a locally owned and operated independent insurance agency with four offices in the greater Birmingham area that has developed into a major provider of commercial and personal insurance. Since 1946, the agency has made acquisitions to expand its scope of business and delivers a wide range of insurance products with quality coverage at competitive prices. Byars|Wright has been designated a Best Practices Agency by the Independent Insurance Agents and Brokers of America and was also named “Best Companies to Work For in Alabama” by Business Alabama in 2016, 2017, and 2018. Byars|Wright, Where Relationships Matter. www.byarswright.com.