“Indiana is a state where entrepreneurs see promising developments,” writes Adam Uziolko in Business News Daily. In fact, Indiana has more than 450,000 small businesses. Owners of closely held businesses have special needs. The problem is, however, that too often business owners are so busy developing their business that they do not have time to address the legal issues necessary to ensure their continued success.
Nearly half of family owned businesses do not have a succession plan in place. 62% of owners surveyed said they have not made any provisions for dealing with a shareholder or key employee who becomes sick or dies. The results of that lack of planning are dramatic:
- Only 30% of family owned businesses survive into the second generation.
- Only 12% survive into the third generation.
At Geyer & Associates, we help clients address four basic business planning elements:
- Exit planning
- Business protection planning
- Business owner retirement planning
- Key employee planning
The main goal of the planning might be either to preserve the business or to prepare to transfer it with minimal disruption to operations. A third very important goal might be to reduce or eliminate costly taxes.
Good “what-if” business succession planning often takes “a village”, and our attorneys at Rebecca W. Geyer & Associates work closely with insurance agents, tax professionals, and investment advisors to design a complete plan for each small business.
“What-If” is the main question underlying a formal agreement called a buy-sell. There are three basic types of buy-sell agreements:
- Cross-purchase buy-sell – Each owner agrees to buy out the interest of any departing or deceased owner. To fund that purchase, each owner may buy and own a life insurance policy (and possibly also a disability insurance policy) on every other owner.
- Entity purchase buy-sell – The business itself redeems the interest of an owner in case of death, disability, or retirement. Typically the business pays for, owns, and is the beneficiary of life and disability insurance policies on that owner.
- One Way – For one-owner businesses, the agreement is established between the owner and a key employee.
The agreement sets forth the triggering event purchase price and payment terms, while insurance provides the funds to carry out the agreement.
You might say a business buy-sell asks the tough what-ifs before those tough situations arise!
– by Corrina A. Judd of Rebecca W. Geyer & Associates
