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Life Health > Running Your Business

Small Business Owners Need Financial Help

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Among heads of households with a net worth of at least $1 million, 30% own businesses, which amounts to about 2.5 million people, according to a new survey by the Phoenix Companies Inc., Hartford.

And many of them badly need help from financial advisors, Phoenix concludes.

The survey found, for instance, that among business owners, 69% do not have life insurance for business purposes. In addition, 63% don’t have a business succession plan, and half don’t have a plan for continuing or transferring ownership of their business.

The survey polled more than 1,500 high-net-worth individuals online early this year. Other survey findings show:

==Affluent owners’ businesses have operated an average of 22 years and employed an average of 54 people.

==40% of these businesses gross at least $1 million annually, and 5% gross more than $25 million.

==25% are female owned.

==57% are family owned, which works out to 1.4 million high-net-worth family businesses.

“Advisors should point out to owners that sooner or later, someone else is going to own their business, either through death, disability or retirement,” says Bob Primmer, senior vice president of life distribution and sales for Phoenix.

Once they’ve convinced owners that they need to protect the assets they’ve worked so hard to create, advisors gain a huge sales opening, he notes.

The first step in gaining the confidence of the owner, Primmer says, is to ask whether he plans to keep the business in the family or sell it.

Forcing the owner to ponder this crucial question gives the advisor an entr?e to show how life insurance can be used to ease the transition. It has a role to play in family succession, continuing the business under new owners, creating retirement programs, starting nonqualified executive benefits such as split-dollar life insurance or section 162 bonus plans, or to support the owner’s estate planning, Primmer points out.

For instance, if the owner wants to pass on the business to one family member, life insurance can back an irrevocable trust to bequeath wealth to other children, he notes.

Or it can be used to finance a buy-sell agreement so that, following the death of a partner, other partners can use proceeds to buy the deceased’s shares.

Advisors also need to be able to show how business-owned insurance can cover the loss of key employees or provide liquid assets so that the family is not forced to sell the business upon the owner’s death.

Phoenix has adopted a strategy of going after the small business market through financial advisors, offering its products as a way to secure the eventual transfer of a business.

Along with the results of its survey, Phoenix has introduced a program, Business Owner Strategies, designed to support advisors who want to work with closely held and family-owned businesses.

The program offers brochures, CD-ROMs and other educational tools, backed by the company’s 80 outside wholesalers. The wholesalers are trained to appraise the value of a small business, which is an important first step in convincing the owner to protect that value, Primmer explains.


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