Risk Management for Business Owners
By Jeff Gilbert
For business owners, wealth management can be complicated. Risk management is arguably one of the most important components of a holistic wealth management strategy.
In this post, I take you through three scenarios that can sink your business and explain how to adequately shield yourself from these major risks.
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.
Ready to Create Your Risk Management Plan?
Even if you’re an experienced businessperson, collaboratively creating a risk management plan is good practice. An outside advisor can sometimes spot risks you may have missed.
At Balboa Wealth Partners, we understand that a quality risk management plan isn’t static; it evolves with your company. If you want to learn more or think our firm may be a good fit for you, contact us today. If you’re ready to schedule, give me a call at 949-445-1465 or email me at jgilbert@balboawealth.com.
About Jeff
Jeff Gilbert is the founder and CEO of Balboa Wealth Partners, a holistic financial management firm dedicated to providing clients guidance today for tomorrow’s success. With over three decades of industry experience, he has worked as both an advisor and executive-level manager, partnering with and serving a diverse range of clients. Specializing in serving high- and ultra-high-net-worth families, Jeff aims to help clients achieve their short-term and long-term goals, worry less about their finances, and focus more on their life’s passions. Based in Scottsdale, Jeff and Balboa work with clients throughout the entire country. To learn more, connect with Jeff on LinkedIn or email jgilbert@balboawealth.com.
Advisory services provided by Balboa Wealth Partners, Inc., an Investment Advisor registered with the SEC. Advisory services are only offered to clients or prospective clients where Balboa Wealth Partners and its Investment Advisor Representatives are properly licensed or exempt from registration.
