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If You REALLY Love Them, Ditch The Flowers

Melissa Gerhardt, CFP®, CEPA®, ChFC® | February 22, 2021

We all love our family, friends, our business partners and employees. As business owners, the business is YOUR LIFE. You dream it, nurture it, grow it and enjoy it. It is part of your identity. It is the cash cow that covers your expenses and fuels your lifestyle. Yet, too often we are too caught up in the day-to-day, and forget to take a step back and ponder the “what ifs…?” of life.

A family business firm I often work with has this white paper they created about five what ifs called “the 5Ds of Life”.

Disability, Distress, Disagreement, Divorce and Death

When you are a family-run business, any one of these can catch you off guard and leave your loved ones empty-handed. Often one 5D event will cause a chain reaction and trigger other 5Ds. Without proper measures in place, these events can cause lots of uncertainty, leaving everyone wondering about their finances, home, job and the future of the company.  

Let’s take a closer look into the 5Ds and what you can do:

Disability

What if you could not work for a week, a month or longer? Is the business in a position to pay your salary if you are not there? How would your family replace your lost income? How would bills get paid? Proper disability coverage can provide your family the income they need, the business an income stream to higher your replacement or fund a buyout if you are permanently unable to work.

Distress

Business distress can have major impacts not only in the business but personally as well. Prime example is COVID-19, many businesses were forced to shut down or go all virtual almost overnight. This shutdown traditional in-person revenue streams and forced employers to lay off many employees. Many of my business owner clients stopped taking income just to keep the business afloat and pay their employees. Having proper emergency funds in place can help during times of distress. As a minimum, the rule of thumb is 3 months of expenses if you get a W2 and 6 months of expenses if you are self-employed. Please note that I said expenses and not income. They are two VERY different things, with expenses often outpacing income in most U.S. households.

Disagreement

Clashing opinions amongst partners can lead to the death of a business or even the potential divorce of business partners. Put agreements in place while times are good. In fact, before you even start a business with a partner, TALK about how you will part ways if the need arises. If you wait until times get rough it can be hard to come to an agreement that feels fair.  Documents to help prevent disagreement include drafting partnership agreements, family constitutions and buy sell agreements. 

Divorce

Under disagreement, I mentioned the theoretical “divorce” of partners (because anyone who has been in a partnership will tell you it is like a marriage).  Here though I am talking about the impact of a personal divorce on a business. Depending on your situation and state, a personal divorce could force you to sell the business or it could become part of ligation if a spouse has an intellectual or financial investment in the business. Even the divorce of an adult child who works in the business could have unintended consequences. This is where having a governance plan in place is critical and working with a family business lawyer can help set up the right types of agreements.

Death

We all know death is a real risk (the biggest risk) that WILL happen at some point. Yet, despite it’s inevitability, it’s a topic that is very hard to face for most.  Leaving your loved ones without an income stream can negatively change their lives forever. Protect your family and business by making sure you have proper life insurance in place. Proper insurance can also help a family replace income, a business stay afloat while replacing you or provide an the money needed to fund a buy out of your loved ones. 

This year, ditch the flowers.

Nothing says, “I love you” more than securing your family’s financial and emotional well-being. And think of your employees. After all, they are family, too.

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Melissa is an Advisor with Legacy Planning Partners providing comprehensive financial planning and financial services to business owners and individuals. Alongside the team of advisors and staff in the Lehigh Valley, she is committed to providing her clients with professional service and assistance in securing their financial future. Melissa provides guidance in the areas of business family succession planning, financial strategies, retirement solutions, insurance solutions, investment management, estate planning, and education funding for children.

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