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Business Owners Failing to Plan for Unexpected Events: Study

Many business owners think they are good decision makers but they fail to address essential long-term business planning that is critical to sustaining their businesses for the long-term.

While they feel they want to protect their businesses and families, they don’t always know what to do or where to go for advice.

According to a study by Massachusetts Mutual Life Insurance Co., while business owners are very busy working to improve their operations, they are leaving their businesses exposed for the long-term. Many owners worry about keeping good employees and their own retirement but have not taken steps to address their concerns. Also, only 44 percent have a buy-sell agreement in place, the 2015 MassMutual Business Owner Perspectives Study reveals.

“We found that business owners are spending the majority of their time working in their businesses instead of on their businesses,” said Tara Reynolds, corporate vice president, Life Company Marketing, MassMutual. “It’s never easy to think about death or disability, but in order to raise awareness about these longer-term issues, business owners need to be confronted directly with the potential risk and damage of unexpected events.”

Business owners in the survey identified these concerns as top-of-mind:

Effect on business of death or disability of owner or key employee

• Protecting the business from disability and death of an owner or key employee had the second and third highest level of importance (44 percent versus 42 percent, respectively). However, these two pillars were not very top of mind, with 55 percent saying they rarely or never think about the effect of disability and 59 percent saying they rarely or never think about the effect of death.
• Of those with a buy-sell agreement in place, just over half say it is funded with life insurance, but only 5 percent say it is funded with disability buy-out insurance. The rest were either funded with cash flow from the business or not funded at all.

How to keep key employees

• Eighty-one percent of respondents said keeping key employees loyal is important and nearly two-thirds say they think frequently about the issue.
• Ninety percent of survey respondents report offering some kind of benefits to their employees, with the top three most common cited as health care (60 percent), generous salaries (55 percent), and flexible work benefits (51 percent).

Life after the business

• Nearly 40 percent of business owners don’t have a retirement income strategy outside of their businesses and will rely on proceeds from the sale of the business or income from the business post-retirement.
• Most business owners surveyed say they have chosen their successor – frequently it’s a family member. However, 1 in 4 don’t know they’ve been chosen as the successor.
• Just over half of the business owners surveyed said they have had their businesses valued in the last three years, and the resources they are most likely to turn to for guidance are CPAs and financial professionals.

The study was conducted by Hawk Partners for MassMutual via an online survey of 801 general population business owners from January 23 – March 9, 2015.

Related:

• Commentary: An Economic Case for Internal Perpetuation
• Survey Shows Agents Concerned on Perpetuation; Few Take Action
• Father and Son: Timing Is Critical in Internal Agency Perpetuation
• Less Than 50% of Small Businesses Offer Employee Benefits: LIMRA