Key Takeaways
- 70% of businesses fail within 5 years of an owner's death without buy-sell funding
- The average small business owner has $350K in personal guarantees—a hidden liability
- Business owners need 3 types of coverage: personal, key person, and buy-sell—most only have 1
Business Owners Have Layered Needs
Client Question: "I have life insurance—does my business need something separate?"
| Need Type | What It Protects | Who Benefits |
|---|---|---|
| Personal Coverage | Family income | Spouse, children |
| Key Person Insurance | Business from loss of owner | The business, employees |
| Buy-Sell Funding | Ownership transfer | Partners, family |
| Loan Guarantee Coverage | Personal guarantees | Family, business |
Questions to Uncover Business Needs
- "Do you have partners or co-owners?"
- "What would happen to the business if you died tomorrow?"
- "Have you personally guaranteed any business loans?"
- "Who would buy your share of the business? How would they pay for it?"
The Small Business Owner
A sole proprietor with no succession plan
Setup
Meeting with someone who owns a plumbing business with 5 employees. He has no partners and no plan for what happens if he dies.
Client says:
“I run a plumbing business—been doing it for 15 years. It's worth maybe $500,000 if I sold it. I have five guys working for me. I never really thought about what happens to it if I die. I guess my wife would have to sell it? She doesn't know anything about plumbing.”
Practice Objectives
- 1Explore what the business is actually worth and to whom
- 2Discuss whether someone could run it without him
- 3Understand what his wife's involvement would be
- 4Consider key employee who might buy it
- 5Identify the gap between business value and family's ability to realize it
The Partners Without a Plan
Two business partners without a buy-sell agreement
Setup
Two friends own a marketing agency together, 50/50. They've been successful but never discussed what happens if one dies. One partner is married with kids; the other is single.
Client says:
“My business partner Dave and I own the agency together. We've talked about buy-sell agreements but never got around to it. If something happened to one of us, I guess the other would just... take over? Or maybe the family would want to be involved? We haven't really figured it out.”
Practice Objectives
- 1Help them see the problem: partner's widow becomes your new partner
- 2Explore what each would want to happen
- 3Discuss how a buy-sell funded by life insurance works
- 4Avoid getting too technical—focus on the concept
- 5Encourage them to involve an attorney for the agreement
The Personal Guarantee
A business owner who personally guaranteed a loan
Setup
A client signed a personal guarantee for a $500,000 SBA loan to start his restaurant. He hasn't considered what happens to that debt if he dies.
Client says:
“When I opened the restaurant, the bank made me sign a personal guarantee for the SBA loan. It's $500,000. But that's a business loan, right? That wouldn't affect my family if something happened to me... would it?”
Practice Objectives
- 1Gently explain what a personal guarantee means
- 2Discuss the impact on his family if he died
- 3Explore whether the business could service the debt without him
- 4Consider coverage specifically for the loan guarantee
- 5Don't create panic—help him plan calmly
A business owner with a partner and no buy-sell agreement dies. What typically happens?