Business Succession
Planning
Can your business survive
without you?
Agenda
• Small Businesses in the U.S.
• Planning for When You’re Not Here
• The Buy-Sell Solution
• The Value of Life and Disability Insurance
• How it Works
• Taking the Next Step
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Small Business Effects on the Economy
The estimated 26.8 million small businesses in the United States:
• Create 75% of new jobs
• Employ 50% of the country’s private workforce
• Represent more than 97% of all exporters of goods
• Represent more than 99% of employers
• Generate the majority of innovations (patents) that come from
United States companies
Source: U.S. Dept. of Commerce, Bureau of the Census; Advocacy-funded research by Kathryn Kobe, 2007 U.S.
As posted on www.sba.gov January 2012.
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Why Do Small Businesses Fail?
• Improperly plan for growth
• Management of financial statements
• No plan for a succession of ownership
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A Closer Look
• 85% of all U.S. firms are small businesses
• Only 25% have formal retirement succession plans
• Only 35% have formal succession plans in the event of death
• The Value of Life and Disability Insurance
• Only 40% with plans use life insurance
Source: LIMRA. “Small Business Owners: 2009”
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What Will Happen to Your Business?
• When your retire?
• If you become disabled?
• When you pass away?
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Preserving Your Life’s Work
It’s all about…
Control
Choice
Continuity
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A Written Buy-Sell Agreement Contains:
• Who will buy/sell?
• When will the transaction happen?
• At what price will the business be purchased?
• Stated terms of the transaction
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Valuing the Business
• Appraisal
• Stated price
• Formula
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How Will the Buy-Sell be Funded?
• Management or family can borrow the funds
• Your company can save for it
• You can arrange to buy the business interest under an
installment basis
• You can acquire life and disability insurance coverage
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Consider Life Insurance
• Provides the cash needed immediately
• Prevents drain on business profits
• Helps to quickly turn a non-liquid asset into a liquid asset
• The policy’s death benefit can be designed to increase over time
to reflect the growth of the business1
1 Additional
underwriting requirements may apply; no guarantee that insured(s) will qualify for increased
death benefit protection.
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Disability Buy-Out Insurance
• Minimizes impact to the bottom line
• Can be used to help replace a portion of the disabled owner’s
salary or purchase his interest
• Disabled partner will likely continue to draw salary or K-1 income
• Can be used to pay overhead and expenses
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Types of Buy-Sell Agreements
Entity Redemption
• The business itself is the buyer
Cross Purchase
• The owners buy from each other directly
• Between two or more owners
Unilateral Buy-Sell
• Between the owner and a key employee or family member
in business
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Which Plan Makes Sense?
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Stock Redemption / Entity Agreement
Business
Interest
Estate of
Owner A
Business
Owner A
Purchase
Price
Premium
Payments
Insurance
Proceeds
Owner B
Insurance
Company
The Business is the owner and
beneficiary of a policy on each owner
Owner C
The income tax-free status of life insurance death benefit proceeds is very valuable. To ensure that the death proceeds of an
employer-owned policy can retain this benefit, it is essential to comply with the requirements of Internal Revenue Code Section 101(j).
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Cross Purchase Agreement
Redemption Price
Estate of
Owner A
Life
Insurance
Policy on
Owner B
Business
Interest
Life
Insurance
Policy on
Owner A
AGREEMENT
Owner A
Owner B
Premium
(On life of B)
A owns and is the beneficiary of a
Policy on B
Insurance
Company
Premium
(On life of A)
Insurance Proceeds
(Life of A)
B owns and is the beneficiary of a
Policy on A
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Unilateral Purchase Agreement
Redemption Price
Estate of
Owner A
Life
Insurance
Policy on
Owner B
Business
Interest
Life
Insurance
Policy on
Owner A
AGREEMENT
Protégé
Insurance
Company
Premium
Payments
Insurance Proceeds
(Life of A)
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Benefits of a Funded Buy-Sell
• Assures the business interest can be purchased at fair
market value
• Ties key people to the business
• Develops management loyalty
• Helps to ensure competent successor management
• Provides employees with more job security
• Helps open the doors to future financing
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Getting Started
• Define your goals
• Evaluate the alternatives with your financial representative,
qualified attorney and accountant.
• Implement the strategy to protect your business
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The information contained in this document is not intended to (and cannot) be used by anyone to avoid IRS penalties. This document
supports the promotion and marketing of insurance or other financial products and services. Clients should seek advice based on their
particular circumstances from an independent tax advisor since any discussion of taxes is for general informational purposes only and does
not purport to be complete or cover every situation.
MetLife, its agents and representatives may not give legal or tax advice. Any discussion of taxes herein or related to this document is for
general information purposes only and does not purport to be complete or cover every situation. Tax law is subject to interpretation and
change. Tax results and the appropriateness of any product for any specific taxpayer may vary depending on the facts and circumstances.
Clients should consult with and rely on their own independent legal and tax advisors regarding their particular set of facts and circumstances.
Like most insurance policies, MetLife’s policies contain charges, limitations, exclusions, termination provisions and terms for keeping them in
force. Contact your financial representative for costs and complete details.
Metropolitan Life Insurance Company (MLIC), New York, NY 10166. Securities products offered by MetLife Securities, Inc. (MSI) (member
FINRA/SIPC), 1095 Avenue of the Americas, New York, NY 10036. MLIC and MSI are MetLife companies.
• Not A Deposit • Not FDIC-Insured • Not Insured By Any Federal Government Agency
• Not Guaranteed By Any Bank Or Credit Union • May Go Down In Value
CLVL24027 L0614377128[0516]
© 2014 METLIFE, INC. PEANUTS © 2014 Peanuts Worldwide
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