Running a family business is both rewarding and challenging at the same time. Hustles connected with its planning can make you feel insecure, while the income gained as a result of the energy invested into the family business may be rewarding and inspiring.
As a business owner, you are always concerned about how to keep your business safe from bankrupts. But when it comes to family business that your family relies on as a main source of income the liability to keep it safe increases twice as much.
Apart from financial and legal aspects of business protection, what is further needed here is to define the overall needs of the family with respect to the Company they own. But first and foremost, it is highly advisable that you consult a professional in order to make a well-crafted business protection plan.
This article has a goal to illustrate certain types of protection that your family business might need.
Here are some key aspects to be taken into consideration:
Life Insurance Protection
Life insurance has different forms of usage, serving both as a personal as well as business protection tool. If something unfortunate happens to you, your business will also be impacted negatively. To protect your family business against unexpected failures or losses, life insurance is there to offer its help.
It will cover certain gaps and will keep the business safe in case of misfortunes happened with the owner of the business. This type of insurance has further benefits in that it will keep the business running until it is sold, or a new member of the company is found. Some major plans to keep in mind with regards to business life insurance:
Key person Life insurance will cover unforeseen expenses of the Company, in case of a tragic loss of the principal employee: the compensations for the loss of income occurred as a result of misfortune connected to the employee will be paid by this policy.
Drafting a Buy/Sell Agreement combining life insurance will help you save money on unexpected events. The compensation provided by this agreement can be used to purchase the business portion of the employee who has passed away. This sort of agreement is especially useful in cases when the family business is a small one, consisting of two or three members.
For a family-owned firm, your business is more sensitive to external factors as it is key to nurturing financial aspect of your family. That is why it is vital to apply for business insurance at an early stage of company creation. To protect your personal wealth, you need a well-structured business insurance policy.
If your family business is focused on offering products or services, business insurance is a must have: it will protect the Company from errors or cover expenses arisen from it, in case your products or services have any kind of drawbacks.
When your family business is closely-attached to your personal or family assets, it is extremely important to purchase an asset protection policy that will keep your assets safe, in case your company goes bankrupt. Asset protection will likewise come into use when some of your family assets are stolen or damaged.
Ownership and Roles
Working in a family-owned business is comfortable when you have a warm relationship with the family members. However, in case of conflicts or any other kind of problems within the family (such as divorce), keeping the balance in a family business might be tricky.
In similar cases, what you can do is to establish ownership rights and roles in the Company Operating Agreement. This document will clarify the questions arisen with regards on who has to do what, which in its turn will facilitate any hustle originated within the family business.
Power of Attorney
If you are on a work trip or a sudden mission abroad and are unable to sign checks or other documents, a special document will serve you as a helping tool. This document is called a Power of Attorney, designated to give permission to another employee or a family member to complete those tasks. Drafted by a professional lawyer, a Power of Attorney will be assigned full legal rights.
As in any other types of companies, the family business must be protected by an employment agreement. The employment contract or agreement should state the rights and obligations of all Company employees, including family member employees, in order to skip future misunderstandings.
The above-mentioned aspects are good arrangements for protecting your business from unsought events and failures. Even though your Company is family-oriented full of warmth and understanding, certain unclear aspects might still be present in a work environment. Hence, it is worthwhile to be armed with necessary documents well in advance in order to liquidate of any obstacles that may turn into real problems for the flourishing of your family business.