Several key techniques for mitigating risk and planning for the future are as follows:
1. Plan for the contiuation of your business if you should die or become disabled. This is an often overlooked principal that the small business owner never feels they have time for. A financial planner friend of mine told me of a company whose owner had a light-bulb moment. It became clear to him that two of his employees were extremely important to the company’s success – the head of the sale’s department and the project manager. So he approached them about getting life insurance. They in turn, expressed their own concern, saying the owner needed life insurance as well. The result was a buy/sell agreement funded by life insurance policies on all three. Just a short time later, the owner died in a car accident. The widow received the proceeds of the life insurance policy, while the two employees received control of the company. Those two employees took the company to new heights. Having a buy/sel agreement in place is crtical, especially when you have key employees.
2. The risk of not having enough liability insurance. Many small businesses believe that “big business problems” don’t apply to them. Things like harrassment suits or hackers bringing down their computer systems could potentially harm a small business or in some cases end it. Employment practices liability insurance is probably one of the more important coverages that is not purchased by small businesses. It covers employee litigation for such things as sexual harrassment and discrimination which often come in the form of a lawsuit for wrongful termination. Most business general liability insurance exclude this coverage while a small number offer very limited coverage. The lawsuits generated from wrongful termination are very expensive and could cost anywhere from $20,000 on up. Another overlooked coverage is privacy breach insurance. This insures a small business against the effects of having their computer system hacked and the network being destroyed or private records being made public. This type of insurance addresses the potential damages from these breeches that can cause litigation, busniness interruption or crisis management.
3. Many small business owners do not have a plan for retirement. Many are planning on selling their business and using that for retirement. Others have funded IRAs and 401k plans but is it enough? Considering the precarious position we are in with Social Security, we can’t rely too heavily on that. One way to assess whether we will have enough or not is to do a projection of future cash inflows and outflows after retirement and see how fast the money runs out based on a lifestyle that has been chosen. Our firm can provide this type of analysis free of charge and there are many other financial planners out there that will do likewise. Many of the financial projection software programs will give a matter-of-fact disclosure of what needs to be done to shore up your financial future.
Whatever you do, please don’t procrastinate implementation of sound plan for yourself and your business