Protect Your Business Legacy

Avoid Mistakes By Planning In Advance

Everyone who establishes a business expects success and growth. Should the business last many years, this turns into a legacy for the founder-owner of the company. What are the possible outcomes when the legacy has been established?

Over time, the foundation of the business may change. Changes in laws, regulations, and compliance requirements; the need for additional owners and stockholders for financial or other concerns; operational needs; changes to the markets―any or all of these may require updates in the basic structure or functioning of the company. External forces may have a great impact; we certainly have seen that in the past two years as many companies have needed to adjust to surviving during the pandemic.

My agency has been in operation for 40 years. While most people think of me as the agency and believe things have stayed the same since I started out, my business has changed significantly through the years. I have adjusted continually to new regulations, new products being offered while others have been discontinued, and other factors. However, the agency has always carried my name and my brand.

Should I suddenly be permanently disabled or die, what would happen to my agency? The cold reality is that there could be a liquidation of my company, and insurance companies would immediately reassign my clients with little or no compensation to my family. The business I have built up and my relationships with my clients would disappear.

Most companies, regardless of their product, service or profession would be no different. 

There are, of course, many stories of buyouts, mergers and sales of family-owned companies for huge sums of money. Two that come to mind are Legal Seafood and Jordan’s Furniture. Both were able to sell or merge operations without loss of value and personal gain to the owners. These companies chose to sell rather than to try to transition to new ways of doing business, but kept their legacies intact because their brands were well-established and they were able to receive the full benefits of their efforts.

The story of Market Basket and the legacy of the Demoulas family is quite different, however.  One of the owners died, and the remaining family members spent many years of legal fighting before one side of the family eventually bought out the others. This particular situation is much more complicated than I want to discuss here, but the lack of planning had a clear impact on the outcome.

No question it hurt the financial fortunes for everyone involved. In addition, the reputation of the family itself was not preserved and their personal legacy was tarnished, even though the supermarket chain survived.

There are specific ways to avoid such complications with such disastrous onsequences.  Life and disability insurance are the most effective financial tools available to allow multiple owners, stockholders and key employees to plan in advance such transfers, commonly known as buy-sell arrangements. 

For my agency, as an example, if I have prepared properly with insurance and planning, my family or perhaps a friendly colleague will be able to make arrangements, allowing them to work with the insurers over time, providing better financial benefits as a part of my legacy. 

Some of the key factors to consider in setting up a buy-sell arrangement would be the ages of the people involved, the ownership percentages, company and job responsibilities, salaries, product and inventory valuation, and, of course, revenue. What is critical is to establish, IN ADVANCE, the overall buy-sell valuation for all parties involved. 

Insurance alone does not set up the buy-sell. Rather, it is an integral part of the overall planning.

Every situation is different, and there are many factors to consider. I have the experience and expertise to work with your key legal and financial advisors to help you develop the right arrangement for your company and your particular needs.

My next discussion will go into more detail to help companies with a very realistic roadmap of what their buy-sell agreements should look like!