Start-ups: 5 Quick Ways to Close Your Business Doors

I’d like to congratulate you. Many people in America do not have what it takes to be a business owner. You, however, have taken the big leap, the leap of faith. Your idea and business plan have come to fruition and you’ve taken the steps to open your very own business. Now it’s time to show you 5 quick ways to close your business doors. Wait, I thought failure wasn’t an option?

Start-ups: 5 Quick Ways to Close your Business Doors

I’d like to congratulate you. Many people in America do not have what it takes to be a business owner. You, however, have taken the big leap, the leap of faith. Your idea and business plan have come to fruition and you’ve taken the steps to open your very own business. Now it’s time to show you 5 quick ways to close your business doors. Wait, I thought failure wasn’t an option?

So, you must have really impressed the Angel Investors or Venture Capital Firms, because you are sitting on a big, fat, shiny, new investment into your business. Things have to work out because you know that all you’ve got to do is follow your business plan, the heavens will open and you’ll be laughing all the way to the bank.

If you don’t follow some initial steps, though, you’ll be crying all the way back to the name tag and khaki’s.

One of the most expensive things about starting a business successfully, is getting all the necessary coverage to protect it. Here’s why you shouldn’t have the lethal “Nothing’s going to happen to me and my business” attitude, and get proactive immediately.

My venture capital investment is not protected with life insurance

Whoa, the big one! How in the World are you still sitting there, reading my article comfortably? You received millions of dollars in venture capital financing (I stress the word “millions”). This is more money than you’ve probably ever seen in your lifetime, and it now has your name tied to it. The funny thing is that you’ll make sure to insure your 1992 Toyota Corolla, which is worth next to nothing, but the millions go unnoticed.

Now that I have your attention, the first step you need to take once you secure these VC funds is to protect it. Life insurance is the perfect solution for this. For starters (pun intended), you need to think of the scary, inevitable fact that one day you are going to die. Who knows when this will happen. Here’s a “what if-” what if you die while you are still ramping up this beautiful new business? No sweat, you say. I’ll be dead. What do I care?

Here’s why you do. There are a couple ways to look at this. One, maybe you have a business partner and the two of you are the main reason the business is ticking. Without you both, there would be no business at all. If you die, a life insurance policy could replace your estimated value of the business (Yes, I know, you’re priceless), so that another, priceless individual could be hired to take over your share. You wouldn’t dare leave all that stress to your poor partner to handle, and not at least be covered, right?

Second, maybe you are a sole owner and have all these new millions. You are the only reason the business is going to survive. Then you bite the big one. Do you really not care about your family that much? Hurtful. Your family is going to have to figure out a way to get that VC debt paid back. Will they take over your company? Is Grandma Betty going to be the new secretary? Who is going to be able to ramp up the business as scheduled, like you could? If you have life insurance to protect the investment, then your priceless portion of the business can be paid back into the business to hire another owner to take over, plus your family is paid per your legal agreement that you proactively created (please tell me you did this), and hurray, everyone’s happy.

This is the solution to your first problem. We aren’t near finished, though.

My business is not protected with a Buy-sell Agreement

By this time, you are re-thinking how much money you asked for in the first place, since it’s now all going to insurance. My string of violins is playing for you, believe me.

This problem applies to business partners. I don’t care who your partner is- your dad, brother, ex-wife’s new husband, baby daddy, sister- you get the idea. Even if you have the best relationship on the planet, you need to create and fund a Buy-sell Agreement.

What is this and how can I get one?

A Buy-Sell agreement is created by your attorney. Its purpose is to protect partners’ share of the business. If one of the business owners dies, what’s going to happen if you aren’t protected? I’ll tell you what- every family member they have (8th and 10th cousins, even) who have heard about this big business will be coming out of the woods. Probably not, but immediate family sure can and will. They aren’t just going to give the business back to the other partner, in exchange for nothing. Without a Buy-sell in place, they just may decide to take over their deceased loved one’s half by being the new, snazzy replacement. I can already tell you how that’s going to pan out…

If you have created a Buy-sell agreement, that’s great, but it’s only half the battle. Now it must be funded. What’s the easiest way to do this? With life insurance, of course!

A life insurance policy is taken out on all business partners and owners for their share of the business (don’t forget about proper business value). This benefit would pay to the deceased owner’s family in exchange for their share of the business.

Perfect! What’s next?

My Key Employees are not protected with Life Insurance

Yes, more life insurance. Did you know that most Americans aren’t insured at all, or are extremely underinsured? It’s a sad fact. I know that you and most everyone is uncomfortable with the whole talk about life insurance, but it’s my job to make sure you step out of that comfort zone and think about all possibilities. The fear is the unknown makes you, well, fearful, but it must be addressed sooner than later in order to run a proper business.

Key Employees are identified as valuable or “priceless” employees of the business. They are typically owners or employees who, without them, the business would suffer. You know who they are. If they call in sick you become that crazy boss man/lady who everybody avoids, because you act like someone who belongs at an anger management class. These employees are your bread and butter, and should be protected with life insurance.

Life insurance for key employees is a policy that would pay you as a business owner in the event of the employee’s death, so that a qualified replacement could be obtained. Often times these employees are expensive to hire and maintain, so naturally a qualified replacement may be costly, hence the need for insurance. Things to also keep in mind is the amount of money a business can lose without a key employee, over time. What if your employee dies and it takes you 6 months to find a decent replacement? How much money could the business lose during that time? The life insurance policy proceeds could sure help replace some of that loss.

I haven’t protected myself from a Disability

By now, I am starting to wonder what kind of shop you are running, without insurance coverage. Over the 8 years I’ve run my business, I’ve seen several cases of business owners or key employees become disabled. I don’t want to tell you the kinds of trouble they have “making it” after this happens.

If you are disabled and cannot work (i.e. all you can do it sit at home and eat bon bons), then you better start thinking about Disability Income Protection. There are two types of policies- traditional/personal Disability, and Business Overhead Expense Disability.

Traditional or Personal Disability Income Protection is set to pay you a portion of your personal salary if you are disabled and unable to work. There are short and long-term options, with varying elimination (waiting) periods and benefit periods (the amount of time you are paid benefits once your elimination period has been satisfied).

Business Overhead Disability is strictly for business owners and partners. It is designed to pay you a portion of your business overhead expenses (payroll, rent, utilities, etc.) if you are disabled and unable to work. Like personal Disability policies, you can select an elimination and benefit period.

Imagine the relief you would feel if you were disabled and couldn’t work for a long time, and had policies in place to keep a portion of your personal income coming to you while you are out, plus some of the overhead expenses could keep the business going, too. Did you think your employees were going to work for free, when you couldn’t afford to make payroll? It’s a good thing there’s a solution for issues like this, isn’t it?

I haven’t given my employees a benefits package

Wow, I wouldn’t want to work for you! You take pride in your new business and have learned that hiring employees can make you get to your goal of being the next Bill Gates much faster. What gives these new employees motivation to commit to you? The promise for an increased salary when the business skyrockets? Nope, that won’t do it.

You should offer your staff an Employee Benefits package. Employees are valuable to the success of a business, and without them, it may not survive.

Let’s say it’s a Monday morning and you have an important day planned for you and your little Generation ZZ’ers. It’s production Monday! Then the phone rings. Nancy has the brown bottle flu. She says she is sick and has to see the doctor. She has no healthcare benefits so she has to pay out of pocket to see a doctor (which at the rate you can afford to pay, is half her paycheck). She is going to be out two or three days now.

I know I don’t even have to tell you how much money you may lose because Nancy’s numbers have been the best of the sales team (next to you, of course). Now, you lose money for the beautiful business and Nancy is upset because she has to pay half her check to see a doctor.

Then there’s Bill. Poor Bill. He was taking the initiative to start being an adult, by mowing his lawn. Something must have been wrong with that crazy mower because it shot out a rock and hit Bill in the leg (ouch). It’s pretty bad and he cannot even walk, much less come to work.

Bill isn’t the best producer, so all good, right? Wrong. Are you going to pay Bill his little salary while he sits at home, watching cartoons and healing? What if he is out for months?

If you had a disability policy in your Employee Benefits package, Bill could receive a portion of his salary while he was out of work. Now Bill is happy and knows that he has a great boss who really cares about him!

With an Employee Benefits package, employers and employees both benefit. An employee who receives benefits is automatically given a sense of job commitment. Many employees have families and so being able to have insurance for their spouse or children is a huge asset to them. Employee Benefit plans can include many lines of coverage, such as health, dental, vision, disability, life, accident, critical illness and cancer.

As you can see, with proper insurance coverage your business can run successfully, without roadblocks (at least these 5). You and your venture capital investors will be very happy that you’ve not only protected the VC investment in the company, but have thought and cared enough about other factors that can play a crucial role in whether or not your company stays in business.

Shelly Alvarez Insurance provides start-ups, angel investors and venture capital firms with insurance solutions for VC funds. For more information, contact us today.