Planning for Worst Case Scenarios
Episode 196: Show Notes
For those of you who don’t already know Emylee – welcome to her anxious life. She is the type of person who can tell you where every exit in a building is, how to stop drop and roll in case of a fire, and where to hide in case a tornado suddenly appears on route to the mall. In business, Emylee is the kind of person that likes to go through every single worst case scenario. She always has a back up plan… and a backup plan for the backup plan. Emylee is truly the queen of the backup plan, and it turns out that this can be a super helpful attribute to have in a business partnership.
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This episode is about planning for the things that you can never plan for. It’s about answering those difficult “what if” questions. It’s about securing your business for the future and the reassurance that this brings to your life. For those of you who are single business owners, we’re not sure you’ve thought of planning for worst case scenarios and exactly how to do that. So in today’s episode, we’re going to be sharing our experiences and the reasons we have made planning for worst case scenarios an integral part of our overall business strategy. We discuss buy-sell agreements, the various insurance options you have, the tough questions you need to ask yourself today and how you can effectively plan for the worst, in the best kind of way. Take a listen!
Why You Should Start Thinking About Worst Case Scenarios
There were two key moments that propelled Emylee to think about the future more seriously and plan for worst case scenarios like a fiend. The first was after Emylee had her daughter; she started thinking more and more about the “what if’s” in life and how to secure the future for her child, as all parents do. The second was after Emylee and Abbie signed their business partner contracts. Here, Emylee started thinking a lot about, “Well what if one of us dies? Or what if one of us wants to retire? Or what if one of us just decides we want out?” Emylee started thinking about all of the worst case scenarios, and she wanted to know if there was something they could do protect themselves.
So we went ahead and brought this up with our financial adviser, who also happens to be our brother-in-law. We’re family, so he knows a lot of what is going on in our lives. He said to us, “Girls, we need to talk. We need to put something in place so that if something were to happen, ya’ll would be taken care of and you wouldn’t be put in a situation that would be detrimental to each other, to the business and to your families.” So he suggested that we set up a buy-sell agreement and back it up with insurance to help us pay if any of these worst case scenarios were to happen.
The Difficult “What If” Conversations You Need To Have
A buy-sell agreement coves more than just, “Well what if Abbie dies and Emylee lives?” It’s more complicated than that, which is great, because there are lots of worst case scenarios and about seven layers to every worst case scenario! Our lawyer was really great is helping us to see that and to think about things we hadn’t even thought about. We set up a buy-sell agreement to protect us in a bunch of different ways. A.) If one of us dies and the other one is left behind, how can the other person pay the spouse of the deceased so that the spouse isn’t involved after all that happens. B.) What happens if we have a bad relationship and we divorce one of our spouses, what happens to the business? Is it protected in a way that that wouldn’t be up for negotiations?
Ultimately, when you are forced to answer these questions you are forced to answer, what is the main goal with the business? If one of us leaves, will the main goal for the business to be carried on? If there’s a divorce, do we still want the business to be stable and carry on? Those end goals help the way you structure your business. For instance, if one of us dies, and the family needs to be paid out their portion of the business and the family is owed millions of dollars, are you going to pay that out in one unrealistic chunk? Or can it be paid out in three years, five years, ten years? There are all these sorts of provisions to help protect the integrity of the business if the goal is to keep it afloat. We went into this rather difficult conversation positively and out of love and care for each other, our families and our business. If anything were to happen, we would reference the document and there wouldn’t be any argument. So, we went into these conversations in a good head space and came out being 100% certain that we were on the same page.
Why Placing A Future Value On Your Business Is Tricky
The biggest challenge coming out of these conversations has been having to now put a value on our business. This is a conversation you would have to have if you were sitting up a buy-sell agreement or you were getting some sort of insurance for your business. You have to have some sort of value. Although there are a lot of industries that have been around for a while, like wedding planning, photography, graphic design – none of that is new. But we can guarantee you that the way that you are making money and getting clients is still relatively new. The internet and internet marketing especially, isn’t that old. It’s very new and there is no industry standard for growth trajectory of those types of businesses. That makes it difficult because there are no concrete formulas for calculating your value yet.
And what is also difficult, especially since a lot of us are the face of our businesses, you yourself have a value. So what then happens to the value of your business when you are gone or if you get a severe disability? Our voice for example is one pretty big aspect of what we are selling at TCC. So what happens if something happens to our voice? These may seem like crazy things to think about... so what we advise is that you insure where it makes sense. But definitely long-term disability insurance, life insurance and retirement is a must!
Setting Up A Contract Meeting And The Reassurance It Brings
In our business scenario, we’re taking out life insurance on each other. But regardless of whether you are in a partnership or not, we do want you to start thinking about how you can protect your business. We want you to really take the time to investigate your insurance options and what you can do to protect your future. This is so crucial. Having a contract agreement like this set up is going to cost you less than $1000. It is not as outrageously expensive as you might think, and it is going to save you a crap ton of cash and a huge headache if something were to happen. It is so reassuring to know that there is something in place for the “what if’s.” This agreement has helped us AND our spouses feel more secure in what we are doing. We should have set this meeting up ages ago! So if you have a financial adviser or a lawyer or an accountant, ask them if they know anyone who can help you with this. You want a lawyer who focuses on contracts, so ask around, set up a meeting, and get yourself protected.
Other Things To Consider: IRA’s, Disability Insurance & Identity Fraud
We set up a retirement plan last year, a simple IRA. If you have employees or are not in a business partnership then you can set up 401k. With a simple IRA the fees are a lot lower than a 401k and there’s no maintenance to it – no administration fees, yearly paperwork etc. On the other hand, we have not gone down the health insurance through our business route at all. At the moment we have great health insurance, through our spouses employment packages, but this is something we have to think about further as our life, business and families change. We are seeing a lot of swift movements with healthcare law but to be honest, there are not a ton of great options available for us being such small business owners. Which is unfortunate.
With regards to disability insurance, take it out before you get hurt, do it when you are very healthy and don’t think that nothing will ever happen to you because your life will change in a split second. And the same goes for just regular life insurance. The younger you get approved for life insurance, the lower rate you can lock into, so do it while you’re at your healthiest! Another potential benefit that Abbie would like to add for TCC is identity protections. What this does is pays for a lawyer to clean up all the mess that comes if someone steals your identity. This saves you tons of time, energy and money. Identity fraud is becoming so common, so identity fraud insurance is not unreasonable to start talking about either. Just saying.
Plan For The Things That You Can’t Ever Plan For, Please
So this episode has really been about planning for the things that you can never plan for. We know that insurance in any way, shape, or form feels like a waste of money... until you need it. It’s just one of those provisions that is a cost for being a human that does stuff, and does stuff online and does stuff that involves money. So be a boss and ask yourself a couple of questions about what we’ve spoken about today, and where it will make sense in your own business to implement. You don’t have to plan for the hurricane-tornado-divorce-death-doomsday that Emylee does every day, but we’re just asking you to plan for something.
Quote This
I started thinking to myself, what if one of us dies or wants to retire?
Highlights
Why You Should Start Thinking About Worst Case Scenarios. [0:04:00.1]
The Difficult “What If” Conversations You Need To Have. [0:06:10.1]
Why Placing A Future Value On Your Business Is Tricky. [0:10:40.1]
Setting Up A Contract Meeting And The Reassurance It Brings. [0:14:30.1]
Other Things To Consider: IRA’s, Disability Insurance & Identity Fraud. [0:22:30.1]
Plan For The Things That You Can’t Ever Plan For, Please. [0:34:30.1]
ON TODAY’S SHOW
Abagail & Emylee
The Strategy Hour Podcast
We help overwhelmed and creative entrepreneurs break down their Oprah-sized dreams to create a functioning command center to tame the chaos of their business. Basically, we think you’re totally bomb diggity, we’re about to uplevel the shiz out of your business.
KEY TOPICS
Business insurance, IRA, Contracts, Life insurance, Disability insurance, Identity fraud, Retirement fund
