Life insurance: an integral tool for business planning

Life insurance often is viewed as financial protection for your family in the case of untimely death. But these policies also often play a very important role in the business world.

From business partnerships and buy-sell arrangements to business succession plans, life insurance can ensure a stable revenue stream and continuity in the event of the death of a partner, owner or integral employee.

The death of a partner or company owner is a crisis for any organization. Not only does the company lose an important member of its key leadership, but a partner’s death means the company often must pay out the amount of the ownership stake to the owner’s heirs.

For a midsized company that is not fully mature, buying out an owner while simultaneously weathering the loss of a key company leader can be a deeply challenging proposition.

A properly structured life insurance policy can ensure that the company has the money on hand to buy out an owner and continue operation of the company without having to take on more debt.

This is important since a company dealing with the death of an owner or partner is most likely already struggling to replace the revenue that the partner generated.

In buy-sell arrangements among business partners, life insurance policies ensure that even a growing company with limited liquidity can transfer ownership in an orderly manner with the insurance policy payout financing the ownership buyout.

There are many different types of life insurance, and policies can be tailored to a business’ specific needs and desired level of coverage. Businesses should evaluate their maturity, liquidity, ownership structure and business succession plans in determining what type of life insurance policy best fits them.

Finally, some companies take out life insurance policies on key staff members whose identity, vision and skill are an integral part of the company’s success.

“Key person” life insurance protects a company from the financial risk of the loss of a CEO, founder or company visionary. A life insurance policy that pays when a key person passes away can help a company weather that storm and have the needed capital on hand to restructure or reorganize.

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Living in interesting times; the Affordable Care Act for Small Businesses

By Bill Saylor

A Chinese blessing (or is it a curse?!) says, in part, “May you live in interesting times.”  Apparently, we’re all blessed these days as the Affordable Care Act continues to take effect.

If you own a small business, chances are you still have questions about the Affordable Care Act.  While it is true that most businesses with fewer than 50 employees are exempt from the penalty and tax requirements of the ‘Act, be careful if you have multiple businesses as you may have to aggregate all your employees in the related businesses to determine the total number you employ and your responsibilities under the ‘Act.

If you are a small business, you do not have to provide coverage to employees and their dependents.  However, if you do choose to offer coverage, be aware that you may be able to purchase coverage on your state exchange starting October 1, 2013. Talk to your exchange and/or your insurance broker to determine whether the exchange coverage is competitive with your existing group plan.

Also, you may be eligible for a federal tax credit of up to 35% (this increases to 50% effective January 1, 2014) of health insurance premiums you pay for employees. This credit is available if you have fewer than 25 full-time employees and if you pay average wages of less than $50,000 annually.  The more than 10 employees and/or pay average wages of more than $25,000, the amount of your credit is reduced.  Be sure to discuss with your tax advisor if you’re not already taking this credit.

Finally, although you may not have to provide coverage, you need to be aware that all your employees will have to buy coverage starting January 1, 2014 or pay a tax.  The amount of the tax varies depending on the employee’s income and subsidies may be available to individuals earning between 100% and 400% of the federal poverty level who are not covered by an employer plan.  Again, you may want to discuss possibilities with your insurance broker or attend one of the many training seminars currently being presented around country.

Good luck and blessings, my friends, it’s going to be an interesting time!

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Employee ownership offers options to owners, workers

Many business owners reaching retirement age look long and hard for a buyer who understands their business model, is knowledgeable about their industry and will continue to operate their business successfully.

Today, more and more business owners are finding those buyers within their own companies.

Employee ownership, often referred to as an Employee Stock Ownership Plan, is an increasingly popular ownership model that, if structured correctly, can benefit both owners and employees.

In a properly constructed ESOP, business owners have ready and willing buyers who will be invested in the long-term growth and health of the company. Business owners also might receive significant tax benefits from converting their business to employee ownership.

Employees, in turn, receive a part ownership of the company, in most cases without having to purchase that ownership stake. Stock typically is given to employees as an incentive, bonus or benefit.

Employee ownership does not make sense in all cases. But mature and successful companies that are valued correctly and well-managed are good candidates for employee ownership.

Employee ownership can foster a superior corporate culture. Employee-owned businesses have the capacity to be more nimble and flexible, and employee-owned businesses often have longer-tenured staff and highly committed employees.

According to a recent Wall Street Journal article, “Businesses with shared ownership plans fared better during the recession than more traditionally structured firms, including fewer layoffs, higher productivity and stronger employee loyalty.”

This corporate culture can differ starkly from a company that is absorbed by a large corporate industry giant. In that buyout scenario, duplicative departments such as marketing and human resources are often consolidated or cut, and often large-scale layoffs occur.

For a business owner who wishes to retire but wants to see the company he or she founded live on as an independent organization, the employee ownership model can be a desirable solution.

Despite these upsides, employees should not take employee ownership as a substitute for diversified retirement planning. Employees should invest in diversified retirement funds separate from their employee ownership.

The baby boomer generation represents a significant segment of business owners.

The Wall Street Journal estimated that 30 percent of U.S. business owners are 55 or older. As those business owners look to retire and pass their businesses on to another owner, a significant portion of them now will be considering their employees as potential owners.

John Solari is the managing partner of J.A. Solari & Partners. He has 25 years of accounting experience and also is a member of the American Institute of Certified Public Accountants and the Nevada Society of Certified Public Accountants.

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