65% of small business owners do not have proper “exit plans” in place?¹ Have you thought about what would happen to your business if you were to suddenly become disabled or die? How would it affect your family? Imagine devastation like this during a recession such as the one we have experienced over the past couple of years. Would it have been hard to sell your business under these circumstances? Would your family be forced to sell at a distressed price?

Many business owners who are partnered with other owners believe their partners would buy their family out in the event of a catastrophic event or be able to continue providing an income to them; however, experience has told us a very different story. In cases where there is no formal agreement, surviving owners have a bargaining advantage over a desperate family. This leaves your continuation plan in the care of the current economic environment, cash flow and financial strength of the business as well as the moral fiber of the remaining business owners. Let me provide you with a scenario:

You and your best friend started a business several years ago that has grown to be a multi-million dollar operation. Your best friend is a man who has the upmost integrity; however, his new wife does not share his reputation. Over the past 5 years or so she has worked in your business and his plan is to leave his share of the business to her. Your wife doesn’t know the first thing about your business, much less what the true value is. On the way to a business meeting, the two of you are killed in an automobile accident. Now your wives are co-owners of this business. What will happen to your wife and family? Will she want to be bought out? If so, will she receive a fair price? How would she know? Will she have to be bought out because of the need for immediate cash? Will she be forced to sell at a less than fair price?

Whether your business is a multi-million dollar operation or a small Mom and Pop shop, death and disability can cause a lot more pain than grief if you don’t plan.

Let’s rewrite this scenario:

You and your best friend started a business several years ago that has grown to be a multi-million dollar operation. Your best friend is a man who has the upmost integrity; however, his new wife does not share his reputation. You discuss your concerns and decide that neither of you would want to work with each other’s spouses. Therefore, you decide to visit your Life Planner to discuss your business succession in the event of an unexpected death or disability. Consequently, you determine the value each of your interest in the business and implement a Cross-Purchase, fully-funded Buy-Sell agreement. The two of you are killed in an automobile accident. Now, your best friend’s wife has the cash to purchase your wife’s business interest at the fair price you and your partner had pre-determined.

Would your business benefit from business succession planning?

Consider these questions:

Has a plan been prepared which maps out the continuation of your business in the event of your death or disability?	□ Yes	□ No
Has a continuation plan been discussed with your family and key employees?	□ Yes	□ No
Do you know the current value of your business?	□ Yes	□ No
If you or one of your partners were to die or become disabled, would you want the business to continue operation among or with other family members?	□ Yes	□ No
Are you certain that your family’s financial needs will be met in the event of your death?	□ Yes	□ No
Will your family receive a fair price for your business interest?	□ Yes	□ No

If your answer to any of these questions causes you to

65% of small business owners do not have proper “exit plans” in place?¹ Have you thought about what would happen to your business if you were to suddenly become disabled or die? How would it affect your family? Imagine devastation like this during a recession such as the one we have experienced over the past couple of years. Would it have been hard to sell your business under these circumstances? Would your family be forced to sell at a distressed price?

Many business owners who are partnered with other owners believe their partners would buy their family out in the event of a catastrophic event or be able to continue providing an income to them; however, experience has told us a very different story. In cases where there is no formal agreement, surviving owners have a bargaining advantage over a desperate family. This leaves your continuation plan in the care of the current economic environment, cash flow and financial strength of the business as well as the moral fiber of the remaining business owners. Let me provide you with a scenario:

You and your best friend started a business several years ago that has grown to be a multi-million dollar operation. Your best friend is a man who has the upmost integrity; however, his new wife does not share his reputation. Over the past 5 years or so she has worked in your business and his plan is to leave his share of the business to her. Your wife doesn’t know the first thing about your business, much less what the true value is. On the way to a business meeting, the two of you are killed in an automobile accident. Now your wives are co-owners of this business. What will happen to your wife and family? Will she want to be bought out? If so, will she receive a fair price? How would she know? Will she have to be bought out because of the need for immediate cash? Will she be forced to sell at a less than fair price?

Whether your business is a multi-million dollar operation or a small Mom and Pop shop, death and disability can cause a lot more pain than grief if you don’t plan.

Let’s rewrite this scenario:

You and your best friend started a business several years ago that has grown to be a multi-million dollar operation. Your best friend is a man who has the upmost integrity; however, his new wife does not share his reputation. You discuss your concerns and decide that neither of you would want to work with each other’s spouses. Therefore, you decide to visit your Life Planner to discuss your business succession in the event of an unexpected death or disability. Consequently, you determine the value each of your interest in the business and implement a Cross-Purchase, fully-funded Buy-Sell agreement. The two of you are killed in an automobile accident. Now, your best friend’s wife has the cash to purchase your wife’s business interest at the fair price you and your partner had pre-determined.

Would your business benefit from business succession planning?

Consider these questions:

Has a plan been prepared which maps out the continuation of your business in the event of your death or disability?	□ Yes	□ No
Has a continuation plan been discussed with your family and key employees?	□ Yes	□ No
Do you know the current value of your business?	□ Yes	□ No
If you or one of your partners were to die or become disabled, would you want the business to continue operation among or with other family members?	□ Yes	□ No
Are you certain that your family’s financial needs will be met in the event of your death?	□ Yes	□ No
Will your family receive a fair price for your business interest?	□ Yes	□ No

If your answer to any of these questions causes you to be uneasy about the future of your business or your family, I strongly recommend you work with your Life Planner to identify and address any gaps in your business continuation plan.

1. LIMRA Small Business Owner Report, 2009

Securities & Advisory Services offered through VSR Financial Services, Inc., a Registered Investment Adviser and Member FINRA/SIPC. Kennedy Financial Services is independent of VSR Financial Services, Inc.

be uneasy about the future of your business or your family, I strongly recommend you work with your Life Planner to identify and address any gaps in your business continuation plan.

1. LIMRA Small Business Owner Report, 2009

Securities & Advisory Services offered through VSR Financial Services, Inc., a Registered Investment Adviser and Member FINRA/SIPC. Kennedy Financial Services is independent of VSR Financial Services, Inc.