Risk Management for Business Owners Made Simple
For business owners, wealth management often comes with extra moving parts, and a lot more at stake. Risk management is one of the most important pieces of a holistic wealth strategy because it helps safeguard what you’re building from unexpected disruption.
In this post, I walk you through three real-world scenarios which can seriously impact a business and share practical ways to shield yourself from these major risks. The goal is simple: help you strengthen your plan so you can grow with more confidence.
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 which 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 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 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.
Ready to Strengthen Your Risk Management Strategy?
Experience is valuable, but even experienced leaders benefit from a second set of eyes. Building a thoughtful risk management plan with an outside professional can help you catch vulnerabilities early and stay prepared for what’s ahead.
At The Rosamond Financial Group, we help businesses create risk management strategies which adapt over time, because your needs today won’t be the same a year from now. Reach out today and call my office at 830-798-9400 or email solutions@rosamondfinancialgroup.com.
About Preston
Preston Rosamond is a financial advisor and the founder of The Rosamond Financial Group Wealth Management, LLC with over two decades of industry experience. He provides comprehensive wealth management and financial services to successful business owners, corporate executives, and affluent retirees who enjoy simplicity and seek a professional to help them pursue their goals. Preston personally serves his clients with an individual touch, a sincere heart, and his servant’s attitude is evident from the moment you meet him. Learn more about Preston or start the conversation about your finances with him by emailing solutions@rosamondfinancialgroup.com or schedule a call on his online calendar.