Supporting Business owners and their families
What happens if you are in business with someone and your business partner dies or becomes terminally ill?
Have you wondered what would happen to your business if suddenly your Business Partner was suddenly diagnosed with a terminal illness or was killed in a motor vehicle accident while away on holidays or on their way to work?
Have you stopped for a moment to consider these questions?
- How would the business cope?
- What would it cost to replace them in the job they do in the business?
- How is the business going to be able to afford to buy their half of the business from their estate or wife?
- The business has a lot of debt and his wife is no longer comfortable in guaranteeing these debts?
- Do you want to be in business with your now deceased Business Partners wife who has no understanding of the running of the business?
- How do you continue to operate the business if you need to borrow additional money for machinery or Business Cash flow?
- What is the emotional impact on you and your staff and not to mention the financial stress on this situation?
These are very real questions that every Business owner needs to consider and what can be done to mitigate these risks. Many of us spend a lifetime building a business and creating equity and wealth in our business but we don’t consider that if something like this happens, the entire business can be destroyed quite quickly and your wealth in the business can be destroyed if specialist advice from SD Life Insurance and Wealth Advice.
Meet Peter and John
They run an Earthmoving and Civil Contracting Business. The business started off small with just them as operators but has grown over the years to have a staff of 30 people and a sizable turnover. During the time both partners have married and started a family with their children now at school. John and Peter over time as the business has grown have established separate roles in the business and have honed their individual skills, with one running the office and managing the quoting on tenders and the administration side of things while the other is hands on in the field running the projects and managing the staff in the field.
The Business has a large amount of machinery debt, and have also recently purchased their commercial property in which to operate from which has a large amount of debt on it which they arranged through SD Loans Leasing and Insurance. Each of the partners and their wives had to use the equity in their homes to secure the commercial property debt which meant that the wives had to sign guarantees to the business to allow the business to use the equity in their homes to assist with the purchase of their premises because the homes where owned in joint names.
John and his family took the Christmas holidays off and jumped into their 4WD and hooked up the caravan to go down south for 4 weeks on a family holiday. John was driving and unfortunately there was a drunk driver coming the other way at high speed and collided with John’s vehicle and John was killed on impact and his wife was in a pretty bad way also needing hospital care. The kids in the back where unharmed.
Luckily for John and Peter and their family, when they were seeking advice about getting their loan from SD Loans Leasing and Insurance, (john hyper linke here again please) they were referred to our sister company SD Life Insurance and Wealth Advice to set up a “Complete Business Succession Plan” While this was a devastating situation to come to terms with, the one things they did not have to worry about was money and servicing debt in the business or for themselves personally.
A Complete Business Succession Plan is tailored to individual businesses and their partners to protects the business, the debt and the wider family members in situations like this and allows the business to continue and have the proceeds of half of the value of the business to be paid to John’s family. Guarantees and mortgages to be released from John’s home to allow for his wife to feel secure. Peter will own the business and take over the entire debt without additional financial burden. Peter’s family will be financial secure from receiving half the proceeds of the value of the business.
A Complete Business Succession Plan is not just a “Buy Sell Agreement” While is incorporates these principles, it does much more than this. It incorporates, the protection of the debt, the business and the wider families of the business partners and one of the major benefits of a Complete
Business Succession Plan is that it allows for the insurance monies to be paid out in the most tax effective way which is the only strategy approved by the Capital Gains Cell of the ATO. This is why we call it a “Complete Business Succession Plan”
This is a specialised Financial Planning advice area and if you or your business require this advice please make an appointment with SD Life Insurance and Wealth Advice today to discuss how we can implement a plan for you.