Beware of Business Financial Hazards Part 2:

Loss of Revenue or Control of Your Business at the Death of Your Partner: Can You and Your Business Survive Having Unexpected Partners?

Your Business Partner

Most business owners chose their partners because of their skills, background, capital, talents, and abilities. For many successful ventures, it was their partnership that allowed them to get where they are today. Without the valuable contributions of each partner, many businesses would drastically change or decline.

Questions to consider

If something happened to your partner, how would that impact your business? Would revenue decline? Would recruiting or payroll expenses go up? Would growth plans halt? Would your ex-partner’s heirs (children, spouse, parents) be your new business partners? Would they have the relationships, experience, and ability to run the business like your partner did before? Who would control business decisions? Would heirs want to sell or distribute assets to get cash out of the business? Would they want to fire or hire different employees, or close the business altogether?

Let’s Look at the Numbers

Company: Local Clean

Owners: Andrea and Samuel - 50/50

Many business owners haven’t considered the extent of the financial losses and loss of control that can flow from the death of a partner. How much could revenue loss from death of a partner impact your business?

LocalClean, Inc. is a successful regional provider of industrial cleaning services and supplies. The company is growing rapidly. Last year, they had $2 million of revenue, expenses of $1.8 million, and a profit of $200,000. Samuel and Andrea are 50/50 owners and each generates about half of company sales. Company cash reserves total about $300,000. Without proper planning, if Andrea died unexpectedly, her ownership could pass to inexperienced or less business-savvy family (Samuel’s new business partners!) and LocalClean could lose all of its profits and cash.

If Andrea died, her share of ownership would pass to her family (spouse, children, parents). Inexperienced heirs would have half of the control over company operations and decisions.

Without her knowledge and personality what if they could only produce 50% of Andrea’s prior revenue?

Without proper planning in place, let’s look at the potential financial harm to LocalClean that could result.

$1,000,000 (Andrea’s prior revenue production) X 50% (reduced productivity of heirs) $500,000 (Andrea’s heirs’ revenue) + $1,000,000 (revenue from Samuel) $1,500,000 (total revenue) -$1,800,000 (LocalClean expenses) -$300,000?(loss; consumption of cash reserves

Even a thriving business can be crushed by unexpected or inexperienced new partners who are unable to produce the same level of revenue. And how much worse could things be if those partners don’t want to drive revenue (0% vs. 50% of Andrea’s production) or move to sell the business outright. All of this can happen if the heirs have different plans or ideas for the future of the business!

You Have Options

What if you could protect ownership from outsiders? What if this arrangement could also help provide for your late partner’s family? What if you could infuse the company with cash to o ffset some revenue lost at the death of a partner and protect cash reserves from depletion? What if the same strategy also improved your business cash performance on an income-tax free basis?

What if you could fund such an arrangement for the cost of one (or less) of the employees on your payroll? What if it could also supplement your retirement? What if there was a way to create the dollars needed in the future for pennies on the dollar today?

Let's talk!

There are several powerful strategies that can help you accomplish these, and many other, business planning goals. Let’s sit down and talk and you can decide if any of these strategies might be of interest to you.

New York Life Insurance Company, its agents and employees may not provide legal, tax or accounting advice. Consult your own professional advisors before implementing any plan-ning strategies. ? 2018 New York Life Insurance Company. All rights reserved. SMRU 1778791 (exp. 06.30.2022)

These strategies must be taken into consideration with the guidance of your board of directors that includes your CPA, attorney and financial professional.

Our team is here to provide a compass or guide for you to make sound decisions. Let us help you #findyourcompass

As always, if this information was helpful to you, please share it with others. Leave your thoughts in the comments below. Let's continue to provide insight into helping business owners in gaining the clarity they need to make sound decisions.

#findyourcompass #businessowner #ownership #revenue #planning #advisors

All the best,

-Roger