Small business owners rarely have an overall plan that dictates the daily operations of their business and maps the achievement of the milestone goals they set along the way. But a business exit plan is just as important as its start up strategy. Who will own your business at retirement? Who will own your business if something happens to you? Do you have partners? Are they equal partners? Do you want your spouse to own your business, or do you want it to be divided up among your family? What are you doing to recruit, retain and reward your key employees? These are just a few of the important items that need to be addressed as a business owner.
One common goal when you’re building a business is to one day sell it to partners, key employees or even a competitor. Often closely held family businesses desire to transfer the company to family members. The ultimate sale of your business at retirement is ideal, but life doesn’t always cooperate. Life insurance can fund business succession plans if things don’t go as planned. Life insurance can fund the transfer of ownership with discounted dollars for those family members or business partners that don’t have a lot of money. Life insurance should be the centerpiece of any well laid transition plans.
Another aspect of life insurance in business planning is executive compensation. Most of the time this is outside conventional compensation packages like a 401(k) or pension plan. Whether you want to attract rainmakers to your organization or keep the revenue drivers happy in your organization, it’s imperative to offer additional compensation to recruit or retain good employees.
Life insurance for protection is a valued benefit, but life insurance for additional retirement funding beyond the traditional ERISA plans can create a differentiation that’s distinctive to your firm. By offering an executive bonus arrangement funded by cash value life insurance, you’re offering extra money commensurate with the performance of your key employee. And because it’s not an ERISA plan you can discriminate between performing and non-performing employees. There are a variety of saving and investment options for the key employee to select from, based on his or her risk tolerance. Life insurance is a powerful business tool that can leverage your business dollars effectively.