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5 Fatal Errorsto Avoid When Starting a Business
Risks and Insurance
The risks associated with a woman owned business come in many forms. And from many directions!
Women in business learn effective ways to manage and reduce personal and business risks.
By Edwin I. Grinberg, Esq. President, Lionshead Financial Planning Company
The Problem:
Are you a corporate business owner who has spent long hours growing your business? Is the business either the largest or one of the largest assets you own? Do you co-own the corporation with other shareholder(s)? Are you concerned that your heirs would not be interested in or able to run the business in the event of your death or disability? Do you have a ready, willing and able buyer for your stock interest? What are possible purchase agreements? Let's take a look at a potential exit strategy.
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Consider the following example. Steve and Roger each own 50% of the shares of Acme Software Development Corp. The business has been fairly successful and is worth $5,000,000. Each owner takes home annual salary and bonuses of several hundred thousand dollars. As is the case with many closely held corporations, Acme has never paid out any dividends to either stockholder. As is also the case with many closely held business owners, Steve and Roger were so busy with the business that they never created or updated their estate plan and had an exit strategy in place to deal with the continuation of the business after the death of one of the stockholders. Returning home from a business meeting, Roger was instantly killed in an automobile accident. Steve faces his partner’s premature death. What happens next? What should have happened?
Many successful entrepreneurs with profit sharing plans or key executives participating in profit sharing may find themselves in situations where they need more life insurance to protect their family or for other needs. Others may be focused more on protecting their families in the event of a premature death, rather than on their own retirement. They, however, do not have sufficient cash flow or other sources of funds to purchase life insurance. As a result, they run the risk of placing their families in financial distress in the event of their death.
By Edwin I Grinberg, J.D.
Revenue in most businesses comes from two sources: capital investments and the ability of management. The hard assets in a business will have an impact on profits. But every successful entrepreneur knows that it is the experience, knowledge, and special skills of an employee that can make or break an organization. Without the guiding hand of “key employees,” the hard assets of the business are worthless. Successful entrepreneurs who overlook the importance of key employees to the continued success of their business do so at their peril. The death or disability of a key employee -- whether it’s a top sales person, executive, technical specialist, or financial wizard -- can quickly cripple the profit-making ability of any business.
