Owners tend to focus on growing their companies and give little thought to business risk. They may assume their Property and Casualty (P&C) business insurance adequately covers their risks. Their assumptions may be correct. Or not. It’s beyond the purview of most advisors, including Owner-Based Planning (OBP) advisors, to provide advice on commercial casualty coverage. Instead, we suggest advisors emphasize the importance, and benefit, of having an experienced P&C professional review existing coverage.

Business Risk Cannot Be Overlooked

But there are also uninsurable business risks, that if overlooked can threaten and even destroy a profitable company. OBP advisors have the tools, products, and training to address many such risks. These risks include:

• • The death or disability of a key employee or owner.

• • A key employee who quits (or is fired) and steals valuable employees, vendor relationships and important customers and starts up or joins a competing business.

• • The theft (usually by an employee or vendor) of trade secrets, intellectual property, including customer information, pricing policies and more.

• • Property and casualty insurance lacking adequate coverage of insurable risks such as employee embezzlement and harassment lawsuits.

• • An outdated or non-existent Employee Handbook lacking provisions such as:
    • benefits,
    • disciplinary policies,
    • employee rights, and
    • • confidentiality concerns.

How Owner-Based Planners Can Address Risk

An important aspect of Owner-Based Planning is helping owners to first understand these risks and then to recommend a solution. For example, one recommendation deals with acquiring key person insurance to provide cash should a key employee or owner die. The insurance proceeds can be used to replace the lost revenue and profits caused by the key employee’s death (or disability), as well as to hire a well-qualified replacement. Another recommendation the BEI software provides is to design and implement an employment agreement for key employees containing non-solicitation and non-disclosure provisions. This would  prevent key employees from leaving, taking customers, trade secrets and the like. Part of this employment agreement is to create an informally funded non-qualified deferred compensation plan in order to motivate and retain key employees. Compensating for the loss caused by a risk event is essential when insurance is available—whether P&C or life insurance. Avoiding non-insurable risk through well-drafted agreements is also critical. OBP advisors are trained and have the tools, including the aforementioned recommendations, to explain risk exposure and how to minimize or avoid it.

How Addressing Risk Protects Business Value

The result of this planning for the owner is 1) an incentive plan to motive the key employee to grow the company and remain long-term, 2) an employment agreement for the key employee in part to protect the company from harm, 3) key employee insurance to replace the loss of the key employee, and 4) informal funding of the incentive plan. Having the knowledge gained through BEI training and the software design tools and  recommendations makes a real difference in the success of your owner clients. One last point—do you know of any advisors who proactively reach out to their owner-clients with recommendations such as these? You can differentiate your practice by incorporating BEI Owner-Based Planning which provides branded recommendations, assessments, white papers, newsletters, meeting agendas and more. Email in**@be***.com to inquire about Owner-Based Planning solutions and events from BEI.