Planning for Your Business Future

Life can be unpredictable and does not always turn out as we planned. Being prepared for a catastrophic event is vital to the sustainability of every business. It is important to prepare for the worst case scenario, thus allowing you to relax and plan for the best. To help you create a plan that addresses the needs of your business, Below is information on the key components that are crucial to have in place to ensure the long term stability of your company.

Consult a Professional
Consulting with a professional will guarantee that you will understand the options available to meet the unique needs of your business. Therefore we recommend that you consult with the following professionals: an attorney, an accountant, and an insurance agent.

Insurance
In the unfortunate event of a death or disability, maintaining the financial stability of the business members is essential to the continuation of the business past the loss. We recommend requiring all members to have disability insurance, life insurance, and health insurance policies that are payable to the member’s families. This will provide financial security for the business members and their loved ones.

Every business should carry a life insurance policy on its owners. This will provide the partners/members/shareholders with the financial ability to purchase the business in the unfortunate circumstance of a death.

Prepare an Exit Strategy
It is important to have a plan in place that will allow the daily operations to continue if you are no longer able to participate in your business. The continuation of the company affects not only the owner’s family, but it also affects the job security of the employees. To protect your company, it is important to discuss possible third party options for ownership. Often times there are family members or employees that could step into your role in an emergency. Prepare that individual for this worst case scenario by speaking to them before an unplanned catastrophic event occurs.

In a partnership or corporation it is important to plan for the scenario that a partner/member/shareholder would want to leave the business. It is important to clearly define how the other owner(s) will buy out the individual and how the buyout will be financed. “Establishing the valuation process up front will avoid conflict at the time of the buyout” states Fred Meier.

Emergency Document
It is important to develop a document that lists your company’s combinations, log in information, passwords, daily systems, and other key information that is required for the daily operation of your business to continue. Keep this document in a safe place and communicate with employees what is to be done on a temporary and permanent basis if an emergency were to occur.

Term Life Insurance for Business – Taking Advantage of Its Benefits

Putting up a new business is a tough job to fulfill – you will surely face a lot of challenges as a beginner. There is no assurance on how far your business can go most especially if you are in the very competitive market. This is why, among other important things, you must not forget to work to secure term life insurance policy for your business.

There are a number of compelling reasons why you must buy an insurance policy that is ideal for your business model. Term life insurance is considered a better option for business protection. It can be used for the following:

  • Collateral for loans – this is useful most especially if you do not have an established credit and assets yet. An insurance policy can help you secure collateral for a loan that can help cultivate your business with the needed finances during its crucial time. You can just pay it off on whatever schedule you have agreed to.
  • Key person insurance – who is this key person? This can be yourself, your business partner or any member who plays an important role for your business. You can protect your business by taking out a term life insurance policy on the key man and assume the role of beneficiary. For instance, if your business partner is the key person and he dies suddenly, as a beneficiary, you can make use of the proceeds to keep the business afloat or to decide to liquidate, have a graceful exit, and move on. Key person insurance can help prevent possible business chaos following the passing of a key member.
  • Buy-sell agreement – supposing one business member (co-owner) suddenly dies, what happens to that ownership then? Typically, his share will be passed to his family member who might or might not be interested in helping the business grow. With buy-sell agreement, potential conflict can be avoided. Other members can buy that share with a certain amount and this can be obtained by taking out a life insurance policy that stands ready to provide the needed funds to facilitate the buyout of that share.
  • Leveraging your accounts receivable – What if you don’t have the liquid assets to buy a policy because you are all tied up in your business, real estate and so forth – how can you buy an insurance policy? Term life insurance policy can be obtained by leveraging your company’s accounts receivable – insurance companies consider it as a qualifying asset for loan.

10 Tips to Make a Family Business Better Than a Quoted Business

Four weaknesses family businesses are prone to, be aware of these and avoid the worst effects:

Conflicts of interest

The family owners have the power to pursue their own objectives and desires. These may not always coincide with the best business interests of the company.In a publicly owned company the pressure from shareholders and the organisational structure should ensure this doesn’t happen to any significant degree. Of course you may still find the company sponsoring the CEO’s favourite sport or even team!

Poor profit discipline

A family business can be inclined to focus on product quality, on having the best equipment, on building a sales empire, or some other ‘non profit’ oriented strategy.

A comparison between small companies and their publicly owned counterparts indicated that the family businesses had lower profit margins, typically half what the publicly owned companies made. Partly this will be a consequence of the different motivators. Public companies are motivated to report growing profits, family owned businesses are more conservative, for competitive and tax reasons they can be less enthusiastic to recognise profits. Nevertheless, there is food for thought on profitability.

Inflexible marketing

When opportunity presents itself, a family business can be reluctant to embrace it, if it requires investment, particularly if that means equity investment and the things that go along with that, dilution and outsiders becoming involved in the business.

The family firm can become ‘engrained’ in a particular fashion or phase and not always recognise the need to continually change and move with the times.

This does not apply to all family businesses, but where a family run business fails it is more often due to poor marketing rather than a problem with production or operations. Once market position is lost, it is slow and difficult to win back. It is highly unusual for the management team that lost the ground in the first place to be capable of winning it back.

Excessive nepotism

Nepotism is the promotion of relatives on the basis of family rather than merit. Weighing against this are the forces of the marketplace. Any company which promotes incompetent people on the basis of family relationships will soon start to suffer at the hands of the competition. The non-family managers can burdened with carrying their incompetent colleagues and of course their opportunities for advancement are restricted. Faced with this combination they are more likely to become disillusioned and leave. So this policy can lead to the firm losing some of its most valuable employees, jeopardising its long term survival.

Six advantages that family businesses have, build on these strengths

Personal sacrifice

The tradition in many family companies is to put the company first, to take dividends only if there is surplus cash and to take a pride in working for the family business. Companies with this ethos can keep going through hard times which would force any other company out of business. An extreme example of this is Weyerhaeuser which incurred an incredible 40 years of losses whilst growing into an industrial giant.In times of recession family businesses can pull together. Family members know it’s their own business they are tightening their belts for. They will give up salary, time and status in order to help the company through a rocky patch. In difficult times family businesses have fewer uncertainties.Family members reporting to one another, confiding in one another growing the business together with the same goals, that is the advantage of a family business.

Valuable reputation

A family’s reputation can sometimes have a beneficial influence on community relations, banks may be influenced by past relations with the family.Family members have ‘star quality’. Customers don’t want to talk to a nameless faceless person. Everyone feels better talking to the person that runs the show. The guy who’s name is over the shop. How convenient then if there are 3, 6 or even a dozen or more people in the organisation sharing just that name! The experience of dealing with a family member can be just as reassuring as dealing with the managing director.There are plenty of big businesses out there portraying an image that says ‘We are bigger, we are more businesslike’. The family business can take a different approach. One that says ‘We are the owners, we care about you and we’ll make sure you’re taken care of’ a lot of people will buy because they like the family approach.Family tradition, pride and responsibility can contribute to the business’ long term success. The family name can become synonymous with quality.

Employee loyalty

Family involvement and management can avoid the problem of excessive turnover in management employees. In other words the family tie is likely to keep the manager in the business. If a non family manager finds a job that suits him better he will leave. If he joins a competitor or even worse decides to set up on his own, this creates a major threat to the business. The small business often relies upon its own techniques or innovations or on providing a faster service and on personal relationships. The departing manager can often take this ‘inside’ information with dire consequences for his former employer.In contrast the combination of family pressure, loyalty and expectation of future advancement tie the family member into the business.

The larger family companies often find it helpful to have family members involved in employee relations.

United shareholders and managers

Quoted companies often have ’employee share option schemes’ because it is seen as beneficial to have employees who are also partial owners of the business. In a family business this is almost always present. This mutuality creates a focus on long term performance rather than short term profit. For instance an investment in research and development. There is greater flexibility more leeway to try something different. The flexibility might not always result in the best decisions being made.There might also be an additional advantage of greater secrecy, they are better able to keep the competition guessing.

Better teamwork

Family business members don’t have to second guess the motives of their co managers or partners. They rarely need to worry about a family member ‘jumping ship’ to work for the competition. Junior family members can speak their mind without the fear they would otherwise have of being fired. The family team can argue over strategy or operations even when one member has their history, heart and soul invested with one particular option. Relatives can do that because they know one another and trust one another. With a non family member it’s much easier to harbour a grudge or allow personal conflicts to build up.

Stability

Many family businesses shy away from projecting their family image, they believe it makes them appear less professional. Other family businesses have found it pays dividends to portray their family background. It shows they are in business for the long term. They will provide continuity for both customers and employees. They don’t need to worry about next quarters profit figures, they can focus on five years time. Running any business is hard work. Managers who’s motives and ethos are understood at home are more likely to be at ease with their work , less stressed about their work – life balance. Building a business with people you care about can be infinitely more satisfying than building a business with people who don’t share the same connection.