While the varied and complex financial planning requirements of small businesses are challenging enough for most advisors, those needs acquire far greater significance when the very existence of the business depends on fulfilling them.

That knowledge can sorely test the abilities and objectivity of even the most skilled advisors. But when the advisor’s counsel leads to a positive outcome, say sources interviewed by National Underwriter, the experience can be highly rewarding, both financially and emotionally.

“You have to be extremely patient and flexible when working with troubled businesses,” says Wayne Minnich, president of Applied Financial Concepts, Richard, Ohio. “If you’re successful in helping them through a trying situation, that client will be yours forever. There’s great gratification in knowing that.”

For many businesses, the challenge is how to stay afloat in a deteriorating business environment. Whether due to volatile market conditions, poor strategizing, fraying relations among partners or a death of a principal, the business has, among other things, to deal with dwindling financial resources.

Apart from affecting business operations, poor liquidity can severely impact the ability of the business to retain key executives and provide for an orderly transition to new management. How, for example, will the firm fund a buy-sell agreement, exit plan or nonqualified deferred compensation package for top managers when cash flow is so tight?

Advisors say the starting point for addressing such challenges is a thorough fact-finding. Among the questions to ask: Where does the firm stand financially and strategically? What are the goals and objectives? How does the business intend to achieve them? And do these intentions align with market realities?

Recommendations notwithstanding, advisors say the financial health of businesses experiencing difficulties should be revisited every three to six months. If the situation is critical, advisor-client meetings should be more frequently scheduled. The upshot of the brainstorming should be a plan to extricate the business from the crisis–backed by a chain of command that inspires confidence.

Often, however, principals stumble when deciding who should run the business. When a parent owner of a sole proprietorship dies, infighting for the top spot can break out among children who inherit the business. Clashes also frequently happen between siblings and key employees, and, as is in the case of a limited liability company, among business partners.

“Everyone must democratically agree to defer to one person,” says Vinnie Conte, president of Conte Financial Planning, Longmont, Colo. “That can be a big deal.”

Management challenges can arise even when written succession plans are in place. R. Clifford Berg Jr., vice president of Centreville, Del.-based Financial House, cites the case of a used car dealership that had contracted with him some years ago. Per a buy-sell agreement, four siblings secured ownership of the dealership, but they couldn’t agree on who would take charge.

The result? “The guy who should have been the chief left the business for another company,” says Berg. “What was left of the business was sold to another used car dealership. The other principals refused to allow the departing exec to be the decision-maker.”

Conversely, the challenge may be to downsize people the business can no longer afford. Berg points to a blueprint manufacturer owner who resisted letting go, or reducing the compensation of, a principal employed at the firm since its founding, though the firm’s loss of market share dictated otherwise.

In other cases, the inability to secure an able and willing third party to run the company can lead to its cessation. Berg cites a sole proprietor of a small communications company who, though near retirement, can’t find a buyer because he occupies a highly competitive field.

“The human factor is not easy to deal with,” says Berg. “I have very difficult discussions with clients, particularly individuals I’ve known for a long time. We have to try to stay objective and focused.”

When the financial situation reaches critical levels, the business may have to tap existing capital assets or credit lines to keep operations running. One source of ready money, say advisors, is the cash value accumulation of life insurance policies used to fund nonqualified retirement plans.

Minnich says the cash component of whole life policies underpinning executive split-dollars plans proved crucial to the lives of two clients that had hit on hard times: one a 200-employee engineering firm in the rubber industry; the other a trucking company owned by two brothers.

To be sure, the cash infusion came at a cost, both in terms of a reduction in the executives’ retirement assets and in interest the businesses had to pay on the policies’ loans. But Minnich emphasizes that the policies bought time for the companies. If and when their financial position improves, they can replenish the retirement accounts.

For many more troubled firms, the hurdle is not to restructure existing insurance policies or financial plans but to establish them. To that end, the advisor’s ability to build maximum flexibility into funding vehicles is key, observers say.

Conte suggests, for example, selling the client a combination of permanent and low-cost term insurance, incorporating a provision in the term policy that allows for later conversion to a cash value policy. He also advises leveraging universal and variable universal life contracts that permit businesses to adjust premium payments, and the rate of cash value accumulation, as financial conditions warrant.

Still greater flexibility can be secured by adopting option ‘B’ (or ’2′) of UL and VUL products, wherein the policy’s death benefit increases in lock-step with the policy’s cash value. These contracts are substantially underutilized, Conte claims, because of the widespread misperception that they have to be more expensive than option ‘A’ policies that maintain a level death benefit.

“If you structure the policy properly, you don’t have to pay a higher premium,” Conte insists. “You give up a little in cash value buildup early on because the [premium payments] buy more life insurance. But isn’t that what clients want?”

Because of their flexibility, Mark LaVine, president of Professional Planning Corp., Woodland Hills, Calif., also favors UL and VUL policies for his Special Tax-Advantaged Retirement (STAR) plans. But he notes these are the not the only vehicles that lend themselves to cost-cutting.

Qualified defined benefit and defined contributions plans, he says, are also flexible in that employers can adjust the percentage of their contributions. And, depending on ERISA requirements, the employer can skip or boost contributions as necessary.

However, such adjustability in benefits may be small consolation to executives, particularly those employed in highly volatile and competitive industries who fear their companies will be unable or unwilling to meet deferred or supplementary compensation arrangements.

To allay their concerns, Minnich advises business owners to establish a Rabbi trust to hold the retirement plan assets. Though the irrevocable trust is subject to the claims of an employer’s creditors, the trust protects employees from a change in company control (e.g., due to a sale by shareholders to a third-party owner whose new management opts not to honor the commitment).

Minnich observes, however, that the Rabbi trust is a “double-edged sword.” While assuring executives a source of funds upon retirement, they give up access to plan assets while employed.

Concerns about retirement funding can pale in comparison to unexpected developments, such as the long-term disability of a key employee. Given the probability of suffering a long-term disability–nearly one in five people are disabled for five years or more prior to age 65, according to one study–Minnich strongly advises owners to buy insurance that provides disability income and funds to replace the disabled principal.

“Most clients and planners blow by this,” says Minnich. “One reason is that, unlike life insurance, there is no cash buildup in the policy. But this insurance can be critical.”

One source of ready money, say advisors, is the cash value accumulation of life insurance policies used to fund nonqualified retirement plans