How To Get Paid!
Small businesses have overlooked needs affecting not only the business owners and employees but also the owners' families. A big need is the business continuity for that owners, partners, stockholders, and the families involved.
Small business
For producers who either know a great deal about business insurance or wish to help their prospects who could be exposed to this issue, a great way to start the conversation would be to ask a prospect what they wants to happen to the business when he dies. You will find three basic options:
1. Keep it.
2. Sell it.
3. Liquidate it.
The producer can look at each of those options with his or her prospects by asking effective questions, as shown in the following questions.
Producer: "One choice is to keep the business in the household. Is that a possibility?
"Another popular choice is to sell the business as a going concern. Would you want to sell your share from the business to the other owners and possess them buy out your family members?
"The third option is to shut the business and sell the assets for cash. How does that sound for you?"
Depending on the answers he receives and what sort of business is involved, producer might skip a number of the questions and ask others.
There are issues surrounding each option. When the business owner would like a relative to retain the business, the producer can explore this option by asking these questions:
o Which members of the family would you like to own your share from the business?
o Who does run the business on a day-to-day basis in your place?
o Have you talked to him or her about this, and is he willing and able to run the business?
o Are the heirs and the surviving owners compatible?
o Do creditors know about your plans, and possess they agreed to maintain their business credit account with another person in charge?
o Just how much annual profit or loss do you estimate in the next five years?
o Would you wish to guarantee these profits for your family, and if so, for how long?
o Would your death cause other outstanding monetary needs?
When the prospect says he wants to sell the business, the producer can explore this matter with these questions:
o To whom would you sell your share? Are they willing to buy?
o What would the price and payment terms be?
o The way it be funded?
o Would the buyout be a legally enforceable agreement?
Finally, when the prospect wants to liquidate the business and sell the firm's assets, the producer should ask such questions as:
o For the way much would you sell the business enterprise today?
o Simply how much would the company lose inside a forced liquidation versus for what it would have sold being a going business?
o Are you experiencing any other business-related debts? Do you wish to pass them along in your heirs or get rid of them at your death?
o What arrangements perhaps you have made to see that your objectives are executed?
"What do you want to happen to your company when you die or retire?" is a good question to start the conversation. The producer can use this question when coming up with cold calls, talking to existing clients that have a business, or choosing business clients that have insurance with him but no life insurance coverage yet.
While these questions have addressed the 3 options available to business owners upon their deaths, the solution they choose creates additional problems for their families and other business partners.
Owners need to protect their stakes inside their businesses, so this is a typical opening in the market. Small business owners readily see the need to provide a source of cash to retain the business should the unexpected eventually a business partner. But few producers carry this idea to the next step; by neglecting to do so, they miss a chance for additional sales.
A highly effective solution to these problems is really a buy-sell agreement. Buy-sell agreements fall under one of two categories: cross purchase or entity purchase.
In any case, at the death of a business partner, the remaining partners are left using a larger share from the business. While positive from the business continuation perspective, the final result of a buy-sell agreement might be a significant estate taxation problem for the surviving owner, if the business started with two owners or 10.
In the event the buy-sell concept is played in the market to its final conclusion, their entire value will be in the estate with the last owner to die.
Let's consider an example, a two-owner wholesale plumbing business.
If the business was incorporated like a C corporation Thirty years ago, each owner invested $12,000. In recent times, each has invested another $25,000 of their own money, and they have reinvested the majority of the corporate earnings.
The business enterprise today is valued at $2.15 million, employs 39 people, and contains an excellent reputation. Both owners have children. Owner One has three daughters, none of whom is active or interested in the business. Owner Two has two sons, one of whom is in the business.
As the business grew, owners entered into an entity purchase buy-sell agreement. They've got kept the insurance coverage up to date so that the business insures every one of them for $1.1 million. If either dies, the business will purchase his share and retire the stock, leaving the surviving owner because the company's sole owner.
In this scenario, although some planning is needed, the first to die can avoid significant negative estate tax consequences.
The survivor, however, will not be so lucky. The survivor will own the complete business, making his gross estate at least $2.15 million, a quantity that almost guarantees significant estate taxation.
How should each owner plan? When they plan only for their current shares with the business, one of them is going to be caught short. Both need to plan as if they shall be the survivor, which creates an opportunity for insurance sales. The statements producer makes should move him toward sales.
Producer: "Owner One and Owner Two, you've taken an important step in protecting yourselves, your family, and each other through this buy-sell agreement. It's something that every business owner ought to do, and I'm glad I was part of helping you place it into place.
"There is one other thing that I should explore with every of you personally. That's what will happen to the survivor's estate. In reality, I should talk to the two of you about your personal estate planning and what's going to happen if you are the survivor."
As we have seen, both owners need to do some estate likely to make sure that no more than necessary sheds to estate taxation.
So what option does the survivor have?
He is able to sell the business, but this creates problems of its own. It will cause capital gains tax on the $2.15 million gain in the business and will leave the balance in the survivor's estate.
The administrative centre gains tax problem would improve if their buy-sell agreement were a cross-purchase as opposed to an entity-purchase plan, but a lot of tax still would be due at the business's sale. And selling the company does not solve the estate taxation problem; it simply switches one asset, the business enterprise, for another, cash. Either way, by selling or holding the business, the survivor of a buy-sell agreement will have the entire business's value as part of his estate.
This is where the producer can explain what he means then schedule a personal appointment with each owner.
Producer: "One of you ultimately will wind up with the full worth of the business in your estate. Unfortunately we cannot know which one which will be. We do know that if the entire value of the business enterprise is in either of the estates, it will create an estate taxation problem. The unlimited marital deduction may defer the taxation, but there ultimately would have been a problem unless you perform some planning.
"I have some ideas on how you each can address this dilemma, and I'd like to share them with you. Owner One, would Wednesday morning or Wednesday afternoon get better because of you?"
There's no question that a buy-sell agreement was a good choice for these owners. But achieved it go far enough?
Small business
Without additional planning, one of these owners will carry the load of the estate taxation for, and the producer working the case will have missed a golden opportunity. The buy-sell policies come up with need for each owner to plan for the eventuality that he would be the survivor, opening the doorway for estate planning. One creates the opening for another companion sale, and that's total needs selling.
Small business
For producers who either know a great deal about business insurance or wish to help their prospects who could be exposed to this issue, a great way to start the conversation would be to ask a prospect what they wants to happen to the business when he dies. You will find three basic options:
1. Keep it.
2. Sell it.
3. Liquidate it.
The producer can look at each of those options with his or her prospects by asking effective questions, as shown in the following questions.
Producer: "One choice is to keep the business in the household. Is that a possibility?
"Another popular choice is to sell the business as a going concern. Would you want to sell your share from the business to the other owners and possess them buy out your family members?
"The third option is to shut the business and sell the assets for cash. How does that sound for you?"
Depending on the answers he receives and what sort of business is involved, producer might skip a number of the questions and ask others.
There are issues surrounding each option. When the business owner would like a relative to retain the business, the producer can explore this option by asking these questions:
o Which members of the family would you like to own your share from the business?
o Who does run the business on a day-to-day basis in your place?
o Have you talked to him or her about this, and is he willing and able to run the business?
o Are the heirs and the surviving owners compatible?
o Do creditors know about your plans, and possess they agreed to maintain their business credit account with another person in charge?
o Just how much annual profit or loss do you estimate in the next five years?
o Would you wish to guarantee these profits for your family, and if so, for how long?
o Would your death cause other outstanding monetary needs?
When the prospect says he wants to sell the business, the producer can explore this matter with these questions:
o To whom would you sell your share? Are they willing to buy?
o What would the price and payment terms be?
o The way it be funded?
o Would the buyout be a legally enforceable agreement?
Finally, when the prospect wants to liquidate the business and sell the firm's assets, the producer should ask such questions as:
o For the way much would you sell the business enterprise today?
o Simply how much would the company lose inside a forced liquidation versus for what it would have sold being a going business?
o Are you experiencing any other business-related debts? Do you wish to pass them along in your heirs or get rid of them at your death?
o What arrangements perhaps you have made to see that your objectives are executed?
"What do you want to happen to your company when you die or retire?" is a good question to start the conversation. The producer can use this question when coming up with cold calls, talking to existing clients that have a business, or choosing business clients that have insurance with him but no life insurance coverage yet.
While these questions have addressed the 3 options available to business owners upon their deaths, the solution they choose creates additional problems for their families and other business partners.
Owners need to protect their stakes inside their businesses, so this is a typical opening in the market. Small business owners readily see the need to provide a source of cash to retain the business should the unexpected eventually a business partner. But few producers carry this idea to the next step; by neglecting to do so, they miss a chance for additional sales.
A highly effective solution to these problems is really a buy-sell agreement. Buy-sell agreements fall under one of two categories: cross purchase or entity purchase.
In any case, at the death of a business partner, the remaining partners are left using a larger share from the business. While positive from the business continuation perspective, the final result of a buy-sell agreement might be a significant estate taxation problem for the surviving owner, if the business started with two owners or 10.
In the event the buy-sell concept is played in the market to its final conclusion, their entire value will be in the estate with the last owner to die.
Let's consider an example, a two-owner wholesale plumbing business.
If the business was incorporated like a C corporation Thirty years ago, each owner invested $12,000. In recent times, each has invested another $25,000 of their own money, and they have reinvested the majority of the corporate earnings.
The business enterprise today is valued at $2.15 million, employs 39 people, and contains an excellent reputation. Both owners have children. Owner One has three daughters, none of whom is active or interested in the business. Owner Two has two sons, one of whom is in the business.
As the business grew, owners entered into an entity purchase buy-sell agreement. They've got kept the insurance coverage up to date so that the business insures every one of them for $1.1 million. If either dies, the business will purchase his share and retire the stock, leaving the surviving owner because the company's sole owner.
In this scenario, although some planning is needed, the first to die can avoid significant negative estate tax consequences.
The survivor, however, will not be so lucky. The survivor will own the complete business, making his gross estate at least $2.15 million, a quantity that almost guarantees significant estate taxation.
How should each owner plan? When they plan only for their current shares with the business, one of them is going to be caught short. Both need to plan as if they shall be the survivor, which creates an opportunity for insurance sales. The statements producer makes should move him toward sales.
Producer: "Owner One and Owner Two, you've taken an important step in protecting yourselves, your family, and each other through this buy-sell agreement. It's something that every business owner ought to do, and I'm glad I was part of helping you place it into place.
"There is one other thing that I should explore with every of you personally. That's what will happen to the survivor's estate. In reality, I should talk to the two of you about your personal estate planning and what's going to happen if you are the survivor."
As we have seen, both owners need to do some estate likely to make sure that no more than necessary sheds to estate taxation.
So what option does the survivor have?
He is able to sell the business, but this creates problems of its own. It will cause capital gains tax on the $2.15 million gain in the business and will leave the balance in the survivor's estate.
The administrative centre gains tax problem would improve if their buy-sell agreement were a cross-purchase as opposed to an entity-purchase plan, but a lot of tax still would be due at the business's sale. And selling the company does not solve the estate taxation problem; it simply switches one asset, the business enterprise, for another, cash. Either way, by selling or holding the business, the survivor of a buy-sell agreement will have the entire business's value as part of his estate.
This is where the producer can explain what he means then schedule a personal appointment with each owner.
Producer: "One of you ultimately will wind up with the full worth of the business in your estate. Unfortunately we cannot know which one which will be. We do know that if the entire value of the business enterprise is in either of the estates, it will create an estate taxation problem. The unlimited marital deduction may defer the taxation, but there ultimately would have been a problem unless you perform some planning.
"I have some ideas on how you each can address this dilemma, and I'd like to share them with you. Owner One, would Wednesday morning or Wednesday afternoon get better because of you?"
There's no question that a buy-sell agreement was a good choice for these owners. But achieved it go far enough?
Small business
Without additional planning, one of these owners will carry the load of the estate taxation for, and the producer working the case will have missed a golden opportunity. The buy-sell policies come up with need for each owner to plan for the eventuality that he would be the survivor, opening the doorway for estate planning. One creates the opening for another companion sale, and that's total needs selling.