Tuesday, March 17, 2009

Your Small Business--Your Family's Most Important Revenue Producing Asset

Small Business--it's what has made America great. The Labor Department reports that more people are employed in small businesses than in all of big business combined. That's a lot of employees. And a lot of business owners.

Most small business owners pour their hearts and souls into their enterprises. It becomes their way of life. Their business is probably the primary revenue and income producing asset for their families. But, and this is key, their families have so much more at stake than the actual take home salary of the owner. For instance, a business owner may be paying him- or herself a $50,000 or $75,000 salary, but the business may be worth hundreds of thousands, or even millions, of dollars. In fact, the tax incentives are for the business owner to pay him- or herself as little as is allowable by IRS guidelines, and keep as much in the business as possible.

So the small business owner must take the topic life insurance very seriously. Not only is the family's income in jeopardy if the business owner suffers a premature death, but the family fortune, as represented by the business' value, may be vulnerable too. The business may close its doors with out the owner. Or, it may have to be sold, and in such desperate times the family may not get the full value for the business. At the very least, if the family keeps the enterprise running, the volume of business would be expected to drop as a result of the change in leadership.

It's a shame when the surviving family doesn't get the full value of such an asset. It's also regrettable that the family doesn't get the full benefit of what the business owner spent his life building.

The proper life insurance can prevent this tragedy in two ways.

The surviving family could take the death benefit from the policy and hire the right kind of executive to run the business. This way, they are keeping the producing asset in the family. And, with the right person hired to man the helm, the business can be expected to continue to produce. In effect, this is key person insurance. The policy can't replace the lost mom, dad, sister, or brother, but it can replace the functionality of the owner in the business. To keep it producing income. To keep it's value up. To help it survive and be a legacy of the owner and the founder.

The second way is for the policy to pay the value of the business to surviving family. That way, they don't have to worry about continuing the business if they can't, don't want to, or don't have the ability to. For instance, we recently wrote a policy on a sculptor. He has a business that makes marble and granite architectural replacement pieces for historic and municipal, mainly state and federal, buildings. He and his talents are the business. Perhaps his spouse could find another sculptor to take his place. But people with this ability are apparently few and far between. So the plan is for the face value of the policy to compensate the survivors of the business owner if her were to die prematurely, as there would be little opportunity in selling the business.

Are you a small business owner? When did you last plan for the succession of your business? It may be your family's most important revenue producing asset.

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