We’ve seen the problems that arise when business owners die unexpectedly. Today we’ll spare the owner a premature demise and see what happens when he or she acquires a severe disability instead.
The third vignette of Business Killers opens with a group of employees sitting around a conference table in a troubling discussion. The owner and founder of the company has had a disability for some time, and no one knows when or if he is coming back to work. Sales are down because the owner is the primary rainmaker and client relationship manager, thus the company is struggling with reduced cash flow. No one knows who is supposed to take the reins and key employees are beginning to look for other options in case the business fails.
Failure to plan for absence of owner can result in asset loss
Human capital is often the greatest asset of a business and the impact of losing high performing employees cannot be overstated. In small- to mid-sized companies, the owner typically provides the greatest leadership, vision, and in many cases, sales for the company. Failure to plan for a temporary – or permanent – absence of an owner or other key player can compromise valuable business relationships and may be the death knell for a business lacking resources to ride out the storm.
Avoid loss of business and employees with these two Plans:
1) Disability insurance to provide needed funds to avoid drawing down cash reserves
2) A written emergency succession plan to address short term or unplanned absences of the owner or other major contributors to the business
According to Mark Baker, another Business Killers team member, disability insurance can help replace after-tax income and may also provide benefits to pay ongoing overhead costs of the business. It also can be used to provide funding to pay for an interim CEO or other temporary staffing so that the company can continue operations.
Lump-Sum Payout Option
Some policies also have a lump-sum payout option similar to a death benefit on a life insurance policy which may be used to buy out an owner’s interest if the disability is permanent and he or she can’t return to the company. Emergency or short term contingency planning – which usually requires cross-training or cash reserves to hire replacement employees – is essential to make sure that the company can survive a temporary loss of key personnel.