My friend, Craig Simms, of VantisLife Insurance Company, an A-Excellent rated company wants to offer all franchise partners this advice:

Many people have life insurance to protect their families in the event of their demise, but how many partners in a franchise business have the proper insurance to protect them?

When one partner in a franchise dies, the impact can be enormous, perhaps even leading to financial catastrophe or shutting down the franchise.

Simms recommends partners explore creating a Business Continuation Plan (BCP).

It can not only reduce your worrying, it will mitigate and perhaps even eliminate the financial impact of such an event.

And as we’ve all heard from our financial advisors, the time to deal with such occurrences is before they happen, not afterwards.

In the case of a franchise partnership, the demise of a partner could destroy a profitable, on-going enterprise.

How to protect your franchise:

A Business Continuation Plan – a plan every partnership should have, will provide for the financial needs of the franchise.

It will:

Give the remaining partner(s) the money to procure the deceased partner’s shares in the franchise and finance expenses to keep your most prized employees.

Remove the pressure to sell the franchise as well as reduce the possibilities of valuation disputes with the Internal Revenue Service.

How the BCP protects your franchise business:

The three ways a surviving partner can use this money to buy out the deceased partner’s shares include:

• Borrowing the cash,
• Making scheduled payments to the family of the deceased,
• Or using life insurance.

The death benefit from a life insurance policy offers the money required to finance a buy-out while providing the remaining partners with funds for a variety of operating expenses.

One of the best benefits of utilizing a life insurance policy for the partnership’s BCP is that it can finance whatever stipulations are in the buy-sell contract:

Entity Purchase Agreement: A partner agrees to buy out the deceased partner’s shares and buys life insurance on the lives of the other partners to have the cash to finance a buyout.

Cross Purchase Agreement: Each partner agrees to buy the shares of the deceased partner and each partner buys life insurance on their partners.

Hybrid Plan: This combines parts of both of the aforementioned and permits the franchise business itself to either buy all or some of the deceased partner’s equity and the surviving owners buy the remainder.

Another benefit is that both Whole Life and Term insurance are usually employed, giving the partners more cash flow options.

Nobody relishes making plans for their demise, yet no matter how unpleasant the task, for franchise partnerships it’s a necessary part of a quality partnership agreement.

Employing a Business Continuation Plan can assist franchise partners, and their families, mitigate the economic impact of a partner’s demise.

This is one piece of insurance in a franchise’s portfolio that should be considered before a bad situation arises, not afterwards when it’s just too late.

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