Protecting family, business, lifestyle

Insurance is one way of protecting your future.

Without protecting it, your life can be suddenly turned upside down.

Protecting family, your business, your employees, yourself and your lifestyle are critical. Tomorrow you could be in a fatal car accident or struck down with an illness. This could  leave your businesses and family in a very insecure and risky situation. No money and no hope. With some thoughtful planning, you can vastly improve the outcomes for your family, your business and your employees. Only about a third of all family businesses successfully make the transition to the second generation.

No matter how well you are protecting your business, even the best businesses have the occasional revenue slumps. However, you are usually able to minimise the impact by introducing better and more timely strategies and insuring against possible disasters. When bad days turn into bad weeks, bad months and bad years, your struggle will intensify. Real problems need to be addressed urgently with new strategies. Worrying is unproductive and won’t fix anything  and the bigger businesses will not be going away. Sales slumps often cause people to cancel critical insurance policies in order to cut expenses.

Your succession plan is critical

There are two aspects to any good succession plan to ensure dreams are not shattered. That is the management succession and the business succession. You need a written succession plan, not just a vague notion in your head. You may not want to show this plan to everyone. In fact, it is probably best to confine disclosure of the plan to advisors and key stakeholders.

Alignment of interests becomes more obvious as people retire and turn over the reins to the new generation. While at the same time looking to the business for their retirement income. Always plan for the worst, taking into account the particular needs of your business and stakeholders. This might include the following:

  • Create an agreement that provides for the orderly transfer of your interest in the business. This agreement may involve the sale of your interest in the business to existing partners, or employees.
  • Provide your potential successors with increasing responsibility. Especially tasks and projects that will build relations and confidence with the business’s employees, partnerships and suppliers.
  • Structure any loan agreements so succession does not accelerate loan repayment and cause unnecessary financial stress.
  • Involve your likely successors with your partnerships, finance providers and investors. Any transition will maintain goodwill and not cause any unnecessary disruptions.
  • Consider the risks including any tax implications. your estate may face and how risks can be mitigated. Focus particularly on those that might force a sale of the business.
  • Avoid or phase-out your personal guarantees involved with any business contracts.

Protecting Your Family

If a spouse, a life partner, a child or a parent depends on you and your income, you need life insurance. Prepare yourself and your family for a disaster by making a will and a succession plan. Do you have a current will? One of the tragedies of an old will or none at all is that the  government will decide the fate of your estate. In that situation, your estate may pass to people you would have left out of your will while those who deserve the benefits may be left with less or none of what you wanted them to receive.

You should consult with a qualified succession and estate planning advisor to discuss the particular needs of your family. You may be able to save vast amounts of money, which otherwise would be needlessly paid in taxes. At the same time making sure your estate goes where you want it to go.

Effective succession and estate planning is not a one-off action

It is continuous updating to meet changing circumstances. Family and personal relationships constantly change as do laws and taxes. Once you have collected this important information, gather your family members and discuss the information you want to put in the plan. Update your plan at least twice a year in accordance with any new issues that have arisen.

You should provide guidance for those closest to you. Gather together all the relevant materials and documents and advise your family and key people  of their location. Too often I have heard of family members ultimately finding insurance certificates and life insurance policies stuffed in old sock drawers. Good instructions will prevent your demise from becoming a wild goose chase for your loved ones.

This part of succession planning is difficult, and many people don’t talk about much less create a plan for the protection of their family and it’s not for lack of caring. In reality, the interest of one family member may not be aligned with another family member. These situations can become even more difficult where there is, a marriage, a divorce or a death and the surviving spouse is holding shares and voting rights, but is not involved in the business.

Protecting your business

What happens when the CEO or the owner suddenly decides to end their time at the helm? Are you prepared? Most business owners will readily admit they spend most of their time just getting through the daily tasks and that succession planning took a back seat.

It can take a lifetime to build a successful business. But figures show that more than ¾ of founders literally throw away their life’s achievement by failing to plan adequately for succession, both relating to the management of the business and the ownership. Handing over to a new generation can be a tricky process in any environment.

The person you nominate to take over from you  should have a great relationship with their colleagues, employees and other stakeholders and should be able to continue your legacy of leadership and be able to reinforce the best of the business’s values.

A successful transition requires more than just a good leader, it needs a team. One of the most critical aspects of succession planning for a business is the creation of a capable team. The team should include individuals that can manage each critical division of your business, such as planning, marketing, operations, management, finance and the general health and well-being of the business and its people.

Creating buyout agreements can be challenging. When the retiring generation looks to the value of their interest, they tend to look at a balance sheet number. In fact, the true value of a business should be based on an earnings capitalisation model, a concept unfamiliar to many smaller family businesses. This is where professional and independent help is critical for all concerned.

Check your depth of talent

A most important business objective should be to make certain there is a depth of talent ready and available to fill critical positions in an instant. Key positions within the organisation, particularly those with strategic significance to ongoing operations, are not easy to fill.

If you have a CEO walk off the job or retire, having a pipeline of talent that can step into that position without delay is often what keeps the business running smoothly. The modern business needs to be prepared for future uncertainties and succession planning needs to be an integral part of their wider strategic plan.

Protecting your employees

Firstly, you should be grooming one or more successors for the leadership role. These individuals should be familiar with all the key aspects of the business and have a solid relationship with your employees, customers and vendors. But more importantly, these people must embody the values and exemplify the culture of your business.

The only way to reduce the effect of lost leadership and key employees is to have a strong succession planning program that identifies and fosters the next generation of employees and their leaders through mentoring, training and stretch assignments, so they are ready to take the helm when the time comes. However, many organisations struggle to take their succession planning programs beyond a static list of names slotted in for a few top jobs.

Some businesses focus all of their succession planning efforts on high-potential employees, while others create a succession plan for everyone from the moment they join the business. The benefit of focusing on high-potential employees is you can channel more resources and coaching toward those employees with the greatest potential. However, the risk is you can overlook good people and alienate and frustrate the rest of the employees. This can adversely impact morale and profits. Most successful organisation focus on everyone, not just the chosen few.

Developing leaders internally takes time and effort. Employees are more likely to be successful than external appointments. This is a good reason to start succession planning as soon as possible.

Protecting yourself and your lifestyle

This part of the plan is the most difficult, and one almost no one tackles.  Yet you need to plan for the possibility that one day when you won’t be able to act on your own behalf. Protecting yourself, your lifestyle and your retirement income can take a variety of forms. A couple of notable parts are a succession planning specialist and a good doctor. Further protection can be given through a properly drafted power of attorney. This allows someone to act on your behalf if you become incapacitated. Obtain the assistance of a skilled practitioner and be absolutely clear about your wishes.

The challenges of succession, both professionally and personally, don’t go away if you ignore them. The results are worse if you ignore the difficulties. On the bright side, take great comfort in knowing that you have thoughtfully planned for the business and people you cherish. After all peace of mind should be a key outcome of success.

Once you’ve completed your succession assessments, look for any bottlenecks in the development process. These could prevent the successors you want, from moving forward. This may include other shareholders and executives who block the way for the next generation. Or there might be glaring gaps in readiness for critical roles and responsibilities. Ideally, have several successors in mind for every important position in varying stages of readiness.

Obstacles to overcome

For years all you thought about was how to get your business to grow and be sustainable. Now that you’re actually profiting from your idea, it’s time to think about your future. Even though retirement may seem a long way off right now. It’s worth thinking about what obstacles and issues you may face, once you stop actively participating in your business.

All the issues raised about succession generally come to the fore in family businesses, where the handover can be frustrated by many obstacles including:

  • Reluctance to release control and power.
  • Lack of interest by family members, they have better options.
  • Poor knowledge of planning.
  • Difficulty choosing among family members.
  • The threat to the founder’s personal identity.
  • Jealousy and rivalry amongst stakeholders.
  • The owners fear, or lack of preparation for retirement. 

A process to get you started

By following key steps relevant to almost all family businesses, it is easier to get started. You can create a viable succession plan, provide for the financial independence of the retiring owners while positioning the business for continued success and growth.

  1. Seek professional help

  • Appoint a succession planning advisor.
  • Appoint an insurance broker.
  • Establish terms of appointment.
  1. Establish clear goals and objectives 

  • Understand your current reality, .
  • Identify what needs protecting.
  • Identify successors including managers of the business and owners of the business.
  • Develop a collective vision, goals, and objectives for the business.
  • Review any current succession plan and related documents.
  • Determine the importance of continued family involvement in the business.
  • Consider the option of bringing in professional management.
  • Establish personal retirement goals and financial needs of retiring family owners.
  • Identify goals of next generation management, both personal and business.
  1. Establish a decision-making process

  • Put in place governance processes involved in decision-making.
  • Estabdecision-making responsibilities for protecting family members.
  • Find a method for dispute resolution should it be required.
  • Communicate succession plans and changes to family and other stakeholders.
  1. Establish the Succession Plan document

  • Document the succession plan and the insurances required for protecting everything into the future.
  • Identify active and non-active roles and responsibilities for all stakeholders.
  • Identify required knowledge, support and training for the successors.
  • Establish a timeline for implementation of the succession plan.
  • Address taxation implications upon sale or transfer of ownership, death, or divorce.
  • Review owner estate planning to minimise taxes and avoid delays in transfer of shares to remaining owners or spouse.
  • Create a buy/sell agreement that is fair, reflects the value of the business, minimises taxes and one that successors can live with.
  • Consider available options: outright purchase, terms of a settlement, gift/bequest, or a combination of these.
  • Consider financing options including financing from an external party or self-financed from the retiring owners on a deferred payout basis.
  • Create an action plan for the transition.

 Succession planning is a key component of a substantial business strategy. Good succession planning is a great tool. Not only for selecting successors, but also to build consensus, strengthen relationships. It can also provide an important overview of the company insurances required for protecting everything.

Taking these steps now will save problems, frustration, time and money. They will help to give surety to the continued success of your business and accomplishment of your dreams.

Quotable quotes

“One of the things we often miss in succession planning is that it should be gradual and thoughtful, with lots of sharing of information and knowledge and perspective, so that it’s almost a non-event when it happens”. Anne Mulcahy

“So many financial dreams are thwarted by the failure to act upon good intentions”. Suze Orman


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