How Business Planning Can Protect Business Owners

What if something happens to you, and you lose control of your business? So who will take over your business, and how will it be handled the way you want it to?

Establishing a business tracking system helps ensure that your business is delivered smoothly.

Successive business planning, also known as planning business continuity, is about planning business continuity after the business owner’s departure. A well-defined business tracking system specifies what happens at events such as retirement, death or disability of the owner.

Good business success plans usually include, but are not limited to:

Mention of policy, such as who will be authorized to own and manage a business;

Business owner planning for retirement, disability planning and estate planning;

Performing procedures, such as to whom you can transfer shares, and how you can do so, and how the transferor supports the transfer;

· Assessing whether there is any life and investment insurance available to provide funding to facilitate the transfer of ownership. If not, how should the vacancies be filled;

· Reviewing shareholder agreements; and

· Assessing business environment and strategies, management capacity and shortcomings, corporate structure.

Why should business owners consider planning a business sequence?

· Business can be transferred smoothly as it is possible to anticipate and correct barriers

Revenue from the business owner through insurance policies, e.g. Continuing income of the disabled or seriously ill business owner, or source of income for the deceased business owner’s family

· Reducing the chances of forcible liquidation due to sudden death or permanent disability of the business owner

For some parts of the successive business plan to work, money is needed. Other common ways to fund a succession plan include investments, internal deposits and bank loans.

However, insurance is often preferred as it is the most efficient and cost-effective solution compared to other options.

Life and disability insurance for each owner ensures that a certain financial risk is transferred to the insurance company in the event that one of the owners transfers it. The proceeds will be used to purchase the business share of the deceased owner.

Owners can choose the preferred ownership of insurance policies by using either of two provisions, a “transaction agreement” or a “business purchase agreement”.

Transaction Agreement

In a transaction agreement, other owners will purchase and have a policy with each other. Upon the death of the owner, the proceeds of their policy will be paid to the surviving owners, who will use the proceeds to purchase the business share of the traveling owner at a pre-agreed price.

However, this type of agreement has its limitations. Importantly, in a business with a large number of partners (10 or more), it is somehow impossible for each owner to maintain separate policies from each other. The cost of each policy may vary due to significant differences between ownership years, leading to inequality.

In this case, a business purchase agreement is often preferred.

Business Purchase Agreement

In a business purchase agreement, the business itself purchases one policy per owner, becoming the policy owner and beneficiary. Upon the death of the owner, the entity shall use the proceeds of the policy to purchase the business share of the deceased owner. All costs are absorbed by the business and equity is maintained between its co-owners.

What Happens Without a Business Tracking System?

Your business may have serious consequences other than a proper business plan in the event of an untimely death or permanent disability.

Without a local business tracking system, these situations are possible.

If the business is allocated to business owners, the remaining owners may be held by the moving business owner’s shares or a percentage of the business.

There may also be a dispute between sellers and business buyers. For example, a buyer may insist on a lower price compared to a higher seller price.

In the event of a permanent disability or serious illness of the business owner, the company’s performance may be affected as they may not be able to work. This can affect customer trust, income and ethics in the company.

The transfer of income to the owner’s family will be terminated if the business owner, the sole breadwinner in the family, passes away unexpectedly.

Don’t let all the businesses you build collapse when you are not there. Planning ahead with a proper business tracking plan before an unexpected or premature event can help protect your business’s legacy, ensuring that you and your family’s future are well cared for.

Financial Planning in Singapore