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Posting by: John Morris
Date: December 22, 2009
Turn on the news and you cannot avoid it; open the paper and it smacks you across the face; look on the Internet, and there are videos spoofing it…
To what am I referring, you ask? The phrase “IN THIS ECONOMY,” usually either preceded or followed by an explanation of how someone is coping or struggling with the bad economy. There is the perfect storm of unemployment, potential tax hikes, healthcare debates, credit crunch and possibly a looming period of hyperinflation. This is great news… for the news stations; however, for individuals and business owners, we cannot escape the doom and gloom, and all we want to know is: What should we be doing IN THIS ECONOMY?
The Big Picture: Focus First on ANY Economy
In fact, I had a client who was a family business owner ask me this very question the other day and my answer was simple. Let’s make sure you have planned for what can impact you in ANY economy first, and then we can look at ways to cope or take advantage of opportunities in this down economy. The question I asked my client was, “How would your business be impacted if you or one of your partners or key employees became disabled or died prematurely?”
Learn to Plan for Universal Risks: Key-Person Planning
Protecting a family business from the impact of a death or disability of a key employee or owner is often an area which is neglected until too late, and the effects are felt no matter how good or bad the economy is. Many family businesses depend on non-family employees for the company's continued success. To guard against financial loss due to the absence of a key employee, and to ensure that the business stays in the family, many companies take out "key-person" life and disability insurance.
If something were to happen to the key employee, this specific insurance type provides the funding mechanism to keep the business functioning while an appropriate replacement is either hired or trained. Buy-sell agreements between and among family business owners are essential as well, because the funding from the buy-sell agreement guarantees a market and fair price for a deceased or disabled owner's business interest. It can also help provide the necessary income to the spouses and children of family business owners so as to keep them from being dependent on the cash flow of the business to maintain their lifestyle.
Seeing the Forest for the Trees
We are all certainly feeling the effects of the down economy in many different ways; however, we should not get so distracted by the threatening news in the media on this economy that we neglect to protect ourselves and our businesses against death and disability, which can impact all of us in ANY economy.
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