You've invested years of your life building your business. Over time it may have become one of your greatest financial assets, and one of your biggest sources of responsibility. As your success grows, so does the importance of safeguarding it.
A thoughtful risk management strategy can help shield the business you've built while supporting your broader financial goals. In this article, we cover three common risks business owners face and how to prepare for them before they become costly setbacks.
Scenario 1: You’re Forced to Sell
If your company is successful and has been for some time, you might not think there’s any situation where you could be forced to sell. However, in my years assisting business owners with risk management, I’ve seen several unexpected (and unfortunate) scenarios play out.
Here’s one. Suppose you and your business partner share ownership of your company. Your business partner suddenly passes away, and their shares of the business go to their spouse.
You want to purchase your late business partner’s shares from their spouse, but you don’t have the liquid capital to do so. As a result, you’re forced to sell your shares.
How to Shield Yourself and Your Company
Fortunately, there’s a fairly straightforward risk management strategy to avoid this situation: buy/sell insurance. It’s a policy that can buy out your business partner’s shares if they die.
Scenario 2: You’re Crushed by a Lawsuit
Any good risk management plan addresses the possibility of lawsuits. For example, suppose you run a roofing business. One of your employees makes a mistake and causes significant damage to a customer’s roof. The customer files a lawsuit to fix the damage. You don’t have adequate liability insurance, so the lawsuit bankrupts your company.
How to Shield Yourself and Your Company
Most people realize that insurance is a critical part of risk management. However, some make the mistake of thinking they don’t need to review their insurance policy once it’s established. Regularly reviewing your company’s insurance policies can help you stay ready for any lawsuit.
Scenario 3: Taxes Force the Next Generation to Sell
If you’re like many successful business owners, you hope to pass your company down to your children one day. You might have already created a business succession plan as part of your estate plan. However, if your business grows in value and you don’t take estate taxes into consideration, your children could be forced to sell.
Here’s an example. Suppose you’ve spent your life growing your business, which is now valued at $30 million. The federal estate tax on your business’s value (not even counting other assets) would be more than $6 million. If your children don’t have sufficient wealth to pay those taxes, they may be forced to sell the company.
How to Shield Yourself and Your Company
Your risk management plan should address how estate taxes should be paid after your death. I often recommend that my clients get a life insurance policy to cover their estate taxes.
Unfortunately, many business owners (and many people in general) put off estate planning because they think they’ll get around to it later. This is a mistake. If you die without an up-to-date estate plan, you’ll saddle your loved ones with financial uncertainty while they’re already grieving.
Strengthen Your Risk Management Strategy
As your business grows, so does the complexity of the risks surrounding it. A comprehensive risk management strategy helps shield not only your company, but also your personal wealth, family, and long-term legacy. An experienced wealth manager can provide an objective perspective, helping uncover vulnerabilities and evaluate opportunities to strengthen your overall plan.
At Anderson Financial Strategies, we believe effective risk management is dynamic. We work with you to refine your strategy as your business, wealth, and priorities evolve. If you would like to explore our services for your family or business, call us at 855-237-4545 to schedule an executive briefing to discuss your goals.
About Shon
Shon Anderson is President and Chief Wealth Strategist at Anderson Financial Strategies, LLC, bringing over 20 years of experience delivering family office-style financial planning as a fiduciary. He holds a CFP® and CFA® designation, an MBA in finance from Wright State University, and has been quoted in CNBC, Forbes, Kiplinger, and other leading financial publications. To learn more about Shon, connect with him on LinkedIn.