What if Your Key Employee Can't Work?
Everything is working just the way you intended and, will likely continue, unless, your buyer dies or becomes unable to work due to disability.
Your Buyer is Amazing – Unless He Can’t Work
You’re doing the hard work. You had the foresight to recruit, develop, compensate, and retain a successor for your business, beginning years ago. You provided the educational opportunities, hands on training, and coaching for your inside buyer to succeed, enabling you to realize the business value you created, allow another generation to fulfill their ownership dream, continue supporting your employee’s families, and, if you own the real estate, you’ll be leaving a viable business that can afford monthly rent checks to finance your comfortable retirement. Congratulations. Everything is working just the way you intended and, will likely continue, unless, your buyer dies or becomes unable to work due to disability.
Take a moment to answer these two questions,
Q1 - “How would the disappearance of your key employee / intended successor affect your exit plan?”
Q2 – “If you are already retired and your buyer is currently making payments, what would be the effect of his inability to return to work?”
Regardless of the operational capabilities of your successor owner, the tragedy of death or disability can ruin the futures of everyone who depends on that key person to be able to work; therefore, it is critical that insurance be utilized whenever underwriting standards can be satisfied to eliminate or at least lessen financial risks. Let’s start with a rudimentary calculation of value at risk, then we’ll offer potential solutions.
Estimated value at risk:
Key Salesperson or Production Employee responsible for $50,000 in monthly revenue = $600,000 per year @ 50% gross profit margin = $300,000 x10 years $3,000,000.
Purchaser buying your business for $500,000 over a 10 year period, plus responsible for monthly rent of $6,000 = $72,000 rent per year x 10 years = $720,000 plus the $500,000 purchase price = $1,220,000.
The dollar values do not reflect related financial consequences or personal planning consequences of death or disability. The quick calculations above are simple illustrations of the high value, high risk considerations that warrant earnest consideration.
Insurance solutions could include: Term Life; Whole Life; Variable Universal Life; Key Person Replacement; Overhead Expense Coverage with a Loan Protection Rider; Other creative approaches.
Many risks exist in our personal and business lives. It is our responsibility to protect those dependent on upon us, (ourselves too), by mitigating what risks we reasonably can through proper due diligence. We hope this issue prompts you to begin thinking....
We can help. Look us up at: https://perpetualbusiness.co/