Tuesday Tip of the Week: July 11, 2017
Insurance and Investing for Small Business
Welcome back to our Tip of the Week here at Budget Boss. This week is all about small business and today we are going to discuss how small business owners can incorporate insurance and investments into their business plan. There are pros and cons of owning your own business. A con is that everything is on you now including all expenses. A pro is that if you are incorporated you can now dictate your pay and cash flow. In this post, I am going to touch on the important insurance products you should have as well as investments that will help your business flourish. Planning ahead will help you through the tougher times. You have to treat your business finances like your own and think of any and every eventuality.
1) Buy/Sell Agreements
If you have a partnership you MUST have a buy/sell agreement. That buy/sell agreement must have insurance to back it up. Think of this scenario. You have a restaurant that you own 50/50 with your friend who is also your partner. If he was to die unexpectedly his 50% share in the business would then roll over to his wife or family. If your business was valued at 500K you would then have to come up with 250K to buy out his wife. If you didn’t have that money she would then be your partner. Maybe she doesn’t want to run the restaurant with you or you don’t want her to either. Having a life insurance policy in place along with a buy/sell agreement can avoid a sticky situation. The policy would be paid by the company, you would be the beneficiary of the policy on your partner’s life and you would use the proceeds to buy out his wife. Losing a partner is a sad day but a long drawn out court battle can ruin your business and life.
2) Key Man Insurance
Do you have someone at your business that is absolutely vital to the operation? Graphic designers, artists, chefs, architects, and many other positions require a personal touch that your business may be built on. If that person was gone what would your business do? Anticipate a dip in sales if that person is gone by covering their life with key man insurance. That insurance policy can cover you while you look for another person that can take the place of that very important part of your business. Many don’t think about how important an individual is to them or their business until they are gone and can’t do anything about it.
3) Disability and Critical Illness Insurance
Tying into buy/sell and key man insurance is disability and critical illness insurance. What if the person you run the business with gets hurt or even worse suffer from a major illness? Most businesses require that owners work 70+ hours a week. That cannot be done if you are hurt/sick. The person who is sick still needs to survive so should the business still pay their salary if they are now not there? These insurance policies can cover the person’s personal needs while the business moves on without them. It can be structured to last however long you wish in order to allow the person to recover, but not cover them for life. After a few years, a replacement will have probably be found so make sure you include this in your buy/sell agreement and business plan.
4) Group Benefits
Depending on what sector your business is in or what year it is in, having group benefits might be vital to your business. Certain higher-end sectors require full-service employment to attract talent. If you are competing with the big boys than you have to offer what the big boys offer. This can include group health benefits and group pension benefits. You don’t need to worry because these plans can be as cheap or expensive as you want them to be. You can tailor them to your needs and the needs of the talent you wish to recruit and retain. You also get tax benefits from providing benefits for your employees that can lessen the burden of the cost.
5) Investment Accounts
I believe it is vital for every business no matter how small to have money saved. What better way to have that money grow over time than in an investment account? Consistent contributions no matter how small will help the business stay viable. The point of business is to flourish, not just to get by. The only way to grow is by having your money grow as well. Having money stocked away can also allow you to make future improvements to the business without having to rely heavily on credit. Debt can drag down a business very quickly so make sure you are liquid and are using the power of your capital to help your business grow.
Businesses are a lot like people in the sense that they both have needs. The main difference between the two is that businesses needs are far greater as they usually have far more people involved. Business needs are therefore more complicated than personal needs. Just like every person needs to be investing and protecting themselves with insurance, so to do businesses. Having a financial advisor that has your businesses back and can answer tough questions for you is huge. Proper money management is essential to your business thriving. Many people don’t find this out until it is too late.
Thanks for reading my tip of the week and don’t forget to tune in tomorrow for Wednesday WTF, my weekly rant on things that waste your money. Have a great day friends!
“I think if you’re an entrepreneur, you’ve got to dream big and then dream bigger.” – Howard Schultz
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Joseph James Francis is a Financial Advisor. You can find him on various social media platforms and at www.budgetboss.ca.