Key Employee and Business Continuation Plans

If you are a business owner who has devoted much time, money and energy to carefully build a business, have you thought about what would happen to that business if you lost a key employee, either yourself or another key man or woman? What if you or someone else key to the company became disabled, retired, or passed away?

All businesses have key people who keep things running successfully through their ideas, know-how, experience, and leadership. Every business, regardless of its size, has key people who contribute to its success. The loss of such a key person can have a very serious impact on the operation of the business, and even though we don’t like to think about these things, the possibility of it happening is a reality, and the scenarios that could accompany such a situation are many.

When A Business Loses A Key Person

Here are some examples of what could happen when a business loses a key person:

  • Your employees could lose their feelings of security.
  • Your creditors could become nervous due to the perception that the business is now in a weakened condition.
  • Your customers may have concerns about the business being able to provide good service, and may shop around.
  • Your family and heirs may need to become much more involved, or surviving owners could be caught with no cash to fund a buyout.

These are just a few of the possible negative consequences that could happen if that key person were taken out of the picture.

Finding A Replacement Takes Time and Money

Replacing that key person is one option for a business that is facing the loss of a key employee, but finding the right person may be difficult. Many times it will be necessary to go outside of the business to find and attract the right person for the position. This takes time and money. Time to find the right person, and money to attract him or her.

One Solution: Key Person Insurance

Key Person PROTECTION Can Provide:

  • CASH TO CONTINUE THE BUSINESS PLAN
  • CASH TO ATTRACT A QUALIFIED REPLACEMENT
  • CASH TO PAY CURRENT BILLS
  • CASH FOR SALARIES
  • CASH TO STRENGTHEN CREDIT OR PAY LOANS
  • CASH FOR MANY OTHER PURPOSES

A Business Continuation Plan

A comprehensive business continuation plan is the best way to ensure your legacy – the future continuation of your business. A business continuation plan is essential to the survival of any business, and it involves at least two key components: A Buy – Sell Agreement, and a funding vehicle for the obligations contained within the agreement.

The Buy-Sell Agreement

A Buy-Sell Agreement can keep your dream alive by providing for the proper transfer of ownership of your business to the successor(s) that you choose. Created through a simple written agreement between you and your fellow owners (or other successors), it specifies buyout provisions in the case of death, disability, or retirement. A properly drafted Buy-Sell Agreement can:

  • Create a “guaranteed” buyer for your business
  • Allow those who are interested in continuing your business to do so without interference from your non-business heirs.
  • Provide liquidity for your estate by converting the business interest into cash
  • Establish the value of your business for federal estate tax purposes

Funding a Buy-Sell Agreement

To ensure prompt execution of the Buy-Sell Agreement and to guarantee that successors will have the money to carry out this obligation, you will need the appropriate funding. There are a number of methods available to fund the purchase obligation, and Johnson Financial Group, Inc. are experts at setting up the funding for Buy-Sell Agreements that will provide the cash that can be used by the surviving owner(s) or other buyer(s) to purchase your business interest from your estate.

Benefits of a Properly Funded Buy-Sell Agreement

  • The funds are assured from the very beginning
  • Proceeds are generally free from federal income tax
  • Cash within the funding vehicle can be used in financing a lifetime buyout
  • Your credit position is strengthened

Please contact us at 443-807-7311 for more information or for a free needs assessment.