Business Owner Discovery
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?
The surviving partner automatically gets the deceased's share
The deceased's spouse or estate becomes the new business partner
The business is dissolved and assets are split
The business is sold and proceeds are split