June 1, 2010
by Rod Soutar, consultant
You’ve worked hard to make your practice, your business, a success. There may have been times when you gambled on a business strategy and won — but, for the most part, you stuck to the meticulous business plan that has been your blueprint for growth and achievement. Now, it’s time for a new plan.
What would happen to your practice if you were taken away from it, even temporarily? Would it survive? If you’re like most small business owners, the odds are that your years of careful nurturing and building could come tumbling down without your energetic hands on the reins –because you are your practice.
You’re a professional — a dentist — and you get hit with a sudden, extended illness. Your entire practice will stop — but salaries, operating costs and other fixed expenses won’t. How will you pay them until you’re back in the game?
You’re not only the owner of your small business, you’re also the primary salesperson, accountant and… everything else — and you’re in a car accident that leaves you injured and unable to work for months. Your entire business will stop — but the bills won’t and the income that supported your family will temporarily disappear. Do you have a contingency plan in place?
There’s no need to gamble with your future financial health when you can take some essential steps right now to protect what you’ve built. It’s called ‘business continuation planning’ and it’s the process of identifying issues that could put your business at risk and adopting strategies to help mitigate or eliminate those risks.
As a business owner, you understand the need to protect against risks to your capital assets — that’s why you have fire, theft and other forms of insurance. But one of the major yet often overlooked risks faced by nearly every business is the temporary loss of vital human capital — a practice owner due to a disability as the result of an accident or an extended illness, perhaps even a life-threatening critical illness.
The risk is more likely than you think:
• About 1 in 7 people can expect to be disabled for five years or more before retirement1;
• 43% of all 40-year olds will suffer a disability for at least 90 days prior to age 652;
• 1 in 2 heart attack victims are under 65 years old3;
• 3 out of every 10 workers between ages 25 and 65 will experience an accident or illness that keeps them out of work for three months or longer4.
But with the right business continuation plan, you’ll protect your business and your income by;
• Supporting continued business performance, profitability and productivity,
• Assuring that business debts can be serviced;
• Retaining employees who will continue to view the business as viable;
• Having the resources to fund recruitment;
• Maintaining good supplier relationships; and
• Preserving your customer/client base.
The risks posed by the temporary loss of a primary business owner can be economically managed with critical illness and disability insurance — the cornerstones of an effective business continuation plan.
Disability insurance allows an owner to fund the payment of ongoing essential office expenses such as salaries of employees, rent, utilities, and property taxes (Office Overhead Expense Disability Insurance) and replacement of personal income to pay family expenses during the period of the disability with tax-free dollars (Personal Disability Insurance).
Critical illness insurance pays a one-time lump sum to help cover losses created by the owner’s absence. When the insured person is diagnosed with a critical illness or condition as defined in the policy, the benefit is paid — and how it is used is totally up to the recipient. It can be a vital injection of cash to pay recurring business expenses or to make payments on loans or to suppliers.
Personal protection is key to every business continuation plan — here are some other plan elements to consider:
Key person life insurance ensures there will be a timely injection of tax-free capital should your business suffer the loss of a top producer or other essential employee.
Buy-sell life insurance can fund the purchase of your financial interest in the business by a surviving business partner(s) or shareholder(s).
Disability and/or critical illness buy-out insurance provides a lump sum tax-free payment to fund the purchase of your financial interest in the business by the other partner(s) or shareholder(s) in the event of a long-term disability.
Potential creditor protection by use of personally owned segregated investment funds.
You spent a lot of time developing and implementing your successful business plan. It wasn’t easy and it continues to evolve as your practice grows and prospers. Your business continuation plan demands the same attention to detail.
Protect what you’ve built with a business continuation plan tailored to your business — it’s vital to your continued success, come what may. DPM
Rod Soutar, consultant.
1. Council for Disability Awareness Website: www.disabilitycanhappen.org
2. 2005 Field Guide to Estate Planning, Donald Cady
3. Heart and Stroke Foundation
4. Council for Disability Awareness Website, www.disabilitycanhappen.org
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