Protecting the Future of Your Business

Protecting the Future of Your Business

Hard work and smart thinking have helped you achieve your company’s current level of success. But have you given suffi cient thought and attention to important issues regarding its future – and your own? Are you your company’s greatest

liability? ................................................. 2

Is your company properly investing to maintain its greatest assets? .............. 4

Have you put your company’s needs ahead of your own? ............................. 5

Do you have a plan for exiting your business when the time is right? ....... 6

Closing ................................................... 7

2 Protecting the Future of Your Business

Are you your company’s greatest liability? As a savvy business owner, you have proven your ability to guide your company through the opportunities and obstacles that may come your way. But what if something happens to YOU?

Business ContinuationIf you are the sole owner of your company, do you have a contingency plan for how your business would survive if you died or were permanently disabled? Could it continue to operate – and thrive – in your absence?

Would one of your heirs assume your role within the company, and would that person be prepared to do so? Would you want someone within the company to succeed you – or an outsider to be hired to replace you? Would you prefer the fi rm be sold or dissolved and the assets divided?

Perhaps you co-own your business. Do you and your partners have a plan for your company to move forward after the death or permanent disability of one of the co-owners? Do you agree on changes that would occur in the management and ownership of the company? Do all the stakeholders – partners, key employees, close family members – understand and support the plan? Would they agree on the best path to follow?

These are just a few of the many questions that should be addressed in a comprehensive business continuation plan of actions that would be taken if you were no longer able to manage your company. Such an agreement, which should be reviewed regularly and complement your personal will and relevant legal directives, can help avoid the internal turmoil, customer erosion, family disputes and disrupted revenue fl ow that can follow such a loss.

Every business is unique, with its own set of objectives and obligations, advantages and challenges. Yet many share common issues that could compromise their future success and survival.

While making sure their current strategies are on target and operations are in sync, business owners also should look beyond today to ensure that plans and processes are in place to protect the long-term best interests of their companies and their families.

This report highlights some key questions business owners should ask themselves – and work with their closest advisors to answer – to prepare for whatever tomorrow may bring.


Buy-Sell Agreement

A buy-sell agreement can be an important component of a business continuation plan for companies with multiple owners. The agreement can take many forms to fit your unique circumstances. One popular approach binds the surviving owners to purchase the business interest of a deceased owner at a pre-arranged price while also requiring the deceased owner’s estate to sell its interest to the surviving owners. It helps ensure a smooth transition of ownership, and control and continued stability for the company.

A buy-sell agreement sets a purchase price or formula for your share of the business, with an agreed-upon formula to be used to review and update the price on a regular basis. It guarantees a buyer for assets your heirs may not want or know how to manage, and it prevents your partners from suddenly finding themselves in business with an unintended partner.

The success of a buy-sell agreement depends in part on it being properly funded. Life insurance is often used for funding, with each owner purchasing a policy on the other owners. The policy’s death benefit is eventually used to purchase the deceased owner’s share of the business.

Key Person Coverage

The continued success of a business also could be compromised by the death of a staff member other than an owner. Would your company be hurt by the loss of a key employee, such as a highly skilled specialist who would not easily be replaced or someone with a book of business that might quickly go elsewhere in their absence? Could recruiting, hiring and training a replacement put a financial strain on your business?

Your company’s business continuation plan can include “key person” provisions to help cushion the impact of such a loss. Identifying key personnel … quantifying their value to your business … determining the likely adverse effect of losing them … and identifying actions that would be necessary to replace them are important steps in protecting your company.

Company-owned life Insurance coverage on key individuals can help ensure your business would have funds immediately available to fill in the temporary gaps and cover the costs of recruiting, hiring and training replacements.


Is your company properly investing to maintain its greatest assets? For many businesses, the talent of the owners, top executives and other key employees help set them apart from the competition. Are you properly rewarding these individuals for their contributions to help ensure their continued loyalty and support?

Executive Benefi tsYou most likely regularly review your company’s overall employee benefi ts program for its effectiveness in helping recruit and retain your staff. But have you made sure you are providing value-added benefi ts with signifi cant fi nancial and tax advantages for the key executives, managers and high-ranking specialists who help maintain your competitive edge?

Numerous options are available to help reward them for their contributions, beyond their regular compensation and standard benefits. Financial, legal and tax implications for both your company and associates are among the issues that should be given careful consideration when planning an effective executive benefits program.

Deferred Compensation Plan

Nonqualifi ed deferred compensation plans can be provided to executive-level employees to supplement the company’s standard qualifi ed retirement savings plan, such as a 401(k). Deferred comp plans enable you to give select, higher-wage employees a way to defer additional portions of their pre tax compensation to a later date, providing greater fl exibility in when and how they receive those funds. These plans provide ways for businesses to incent executives and help alleviate retirement income gaps without making adjustments to existing retirement plans for the remainder of their employees.

Executive Bonus Plan

Through an Executive Bonus Plan, also known as a Section 162 Plan, the company pays the employee a bonus (or raise in pay) equal to the premium on a permanent life insurance policy on the employee’s life. The employee uses the bonus to buy the policy, which offers a death benefi t for the employee’s family as well as cash value that accumulates tax free until withdrawn.

With proper planning, both the death benefi t and cash value can be free from federal and state income taxes, capital gains and Social Security. The bonus itself is treated as taxable income to the employee and tax-deductible to the company. The bonus agreement can specify vesting schedules and performance goals to provide control for the employer while still providing an attractive incentive for the employee.

Supplemental Disability Insurance

Supplemental disability insurance provides a greater level of coverage to highly compensated employees, beyond the level set by the employer’s standard disability insurance. Among the added benefi ts, bonuses and incentive compensation, which usually are not covered under disability insurance, may be included under supplemental policies.


Have you put your company’s needs ahead of your own? Like many other business owners, do you concentrate most of your attention on funding the future of your business – an important endeavor, of course – but give too little thought to funding your own future needs, including your retirement?

Personal Financial SecurityDuring the recession, and in the intervening years, many business owners worked to maintain profi tability by cutting spending, such as hiring fewer employees to control payroll and benefi ts. Many limited contributions to their own compensation and benefi ts, including delaying or reducing payments to their personal retirement plans.

Improvements in the economy and your company’s fi nances may signal it’s time to enhance your own fi nancial well-being by catching up on compensation and benefi ts you sacrifi ced in recent years.

Executive benefi ts addressed in the previous section can boost your own compensation and benefi ts. Additional action also can be taken to improve your benefi ts to refl ect your personal contributions and commitment to your company.

It may be appropriate, for example, to focus on your retirement funds. Have you calculated how much cash you’ll need to maintain the lifestyle you envision – and are you confi dent you’ll have those funds available when it’s time to retire? If not, it may be time to consider practical ways to take full advantage of business dollars to help satisfy your personal fi nancial security goals.

Life Insurance Retirement Plan (LIRP)

The most recognized aspect of a life insurance policy is the death benefi t. But a life insurance policy can become a highly fl exible personal fi nancial tool, building cash value that can be used in numerous ways. A life insurance retirement plan (LIRP) can be set up with options that include providing supplemental income in retirement, paying premiums during a period of disability, helping pay long-term care expenses and more.

Defi ned Benefi t Plan

You also may consider the option of using a defi ned benefi t pension plan to aggressively save for your retirement. Popular several decades ago, these plans have declined in popularity compared to defi ned contribution plans such as 401(k)s. That, however, may be changing for very special situations, such as mature businesses with stable cash fl ows whose owners are nearing retirement and seeking a way to quickly enhance the benefi t dollars set aside for their own retirement.

For 2016, a defi ned benefi t pension plan can be funded to provide an annual retirement benefi t of $210,000. By comparison, 401(k) plans can contribute only $53,000 per year, per employee. (The employee can defer up to $18,000 for his or her 401(k) plan.)

Improvements in the economy and your company’s fi nances may signal it’s time to enhance your own fi nancial well-being by catching up on compensation and benefi ts you sacrifi ced in recent years.


It’s a major undertaking best addressed with careful planning, creative thinking and the support and services of your entire team of personal and business advisors.

You had a plan for growing your business. But do you have a plan for exiting it when the time is right? It can be far more diffi cult to retire and leave your business than it was to build it.

Business SuccessionNo matter where you are in the life cycle of your company, you most likely have considered how and when you want to transition from managing your business to retiring from or otherwise exiting it.

On Page 2, we addressed the need for a business continuation plan in the event you die or become permanently disabled while running the company. A similar business succession plan can help you move toward your eventual retirement with confi dence that plans for your company’s future complement and support your personal aspirations and your family’s well-being.

Through your business succession plan, you can address pertinent questions and set a strategy for achieving your objectives. Will you want to pass your company on to members of your family, your management team or perhaps all your employees as a group?

Do you plan to continue to own all or a stake in the company or cease ownership? Do you plan to exit it outright, perhaps taking it public, selling it or dividing it into smaller entities? These are just a few of the many questions that should be answered.

Planning your eventual transition away from your business will be a comprehensive endeavor, accomplished best when it synchronizes multifaceted plans – your business succession or other transfer of ownership, your personal retirement and even estate planning. It’s a major undertaking best addressed with careful planning, creative thinking and the support and services of your entire team of personal and business advisors.

Estate Equalization

If your business succession plan calls for transferring ownership of your business to some, but not all, of your children, it most likely will be important to you to fi nd a way to ensure each child is treated fairly and equitably. With an estate equalization plan, a life insurance policy can be purchased to provide a comparable benefi t to the children who will not receive an ownership stake in the business.

Employee Stock Ownership Plan

Like a growing number of business owners, you may consider transitioning ownership in your company by passing all or part of it to your employees through an Employee Stock Ownership Plan, or ESOP. A defi ned contribution plan, ESOPs were popular in the 1970s and have been regaining popularity in recent years.

Although highly regulated, ESOPs can provide signifi cant tax benefi ts for companies and their owners while giving employees a personal stake in the company.


Conclusion

■ Business continuation and succession

■ Executive benefits

■ Personal financial security

■ Retirement planning

All are important issues that raise many questions but often receive less than the full attention they require and deserve.

In this report we’ve offered no one-size-fits-all answers, for the best solutions are tailored to your specific circumstances. We hope the information shared here can serve as a starting point for discussions that will help you ensure even greater success and confidence in the future.

If you fit any of the scenarios addressed on the preceding pages, the team of advisors who support you with your day-to-day financial, tax and legal needs can help ensure you have thought through all the relevant issues. Your accountant, attorney, banker, financial planner and insurance professional will work with you to develop comprehensive strategies that will protect your business, your family and yourself.

At BB&T we have the foresight, insight and commitment to work with you and your other key advisors to create and implement the plans that are right for you and your business. For additional information, contact your BB&T relationship manager or BB&T Life Insurance Services strategist.

If you fit any of the scenarios addressed on the preceding pages, the team of advisors who support you with your day-to-day financial, tax and legal needs can help ensure you have thought through all the relevant issues.

Insurance products are offered through Crump Life Insurance Services, Inc., doing business as BB&T Life Insurance Services, a subsidiary of BB&T Insurance Holdings, Inc. Variable life insurance products and variable annuities are distributed through P.J. Robb Variable Corp., a subsidiary of Crump Life Insurance Services, Inc. Member FINRA. Insurance.BBT.com

Securities and insurance products or annuities sold, offered or recommended are:

NOT A DEPOSIT, NOT FDIC INSURED, NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY, MAY GO DOWN IN VALUE, NOT GUARANTEED BY THE BANK.

BB&T Insurance Holdings, Inc. and its representatives do not offer legal or tax advice. Please consult your individual tax or legal professional regarding your personal situation.

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Economy & Finance

Protecting the Future of Your Business