Planning for Worst Case Scenarios 2020
Episode 429: 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, or how to stop drop and roll in case of a fire, and where to hide just 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 the queen of doing this and it turns out 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 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 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 didn’t know if there was something they could set up to protect them from all of these worst case scenarios. So, we both went ahead and brought this up with our financial adviser, who happens to be our brother-in-law and who knows a lot about our lives because he is family. He said to us, “Girls, we need to talk. We need to put something in place so that if something were to happen, y'all 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
The specific things a buy-sell agreement covers are not 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 there are about seven layers to every worst case scenario! Our lawyer was really great and helped us to see and think about things we hadn’t even thought about yet. We set this up 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 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 be carried on? If there’s a divorce, do we still want the business to be stable and continue 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 really out of love and care for each other, our families and our business. Because if anything were to happen, we would just reference the document and there wouldn’t be any argument. We went into these conversations in a good head space and came out being 100% certain 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 setting 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 listening that have been around for a while, like wedding planning, photography, graphic design – none of that is new. But we can guarantee you 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 the growth trajectory of those types of businesses that use the internet as much as we do. That is really 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, but pretty big, aspect of what we are selling at Boss Project. So what happens if something happens to our voice? (For instance.) These may seem like crazy things to think about... so what we advise is you insure where it makes sense because you can definitely over-insure. But definitely long-term disability insurance, life insurance and retirement are 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. It’s so crucial. Having a contract agreement like this setup 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, and the headache, if something were to happen. It is just so reassuring to know this has already been accounted for and there is something in place for the “What if’s.” The other thing that is reassuring is it is not going to bankrupt the business or the individuals. This agreement has also helped our spouses feel more secure in what we are doing. We should have set this meeting up ages ago but it is never too late. 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, 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 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, you can lock into that approval rate for a very long time. So do it while you’re at probably your healthiest! Another potential benefit Abbie would like to add for Boss Project is identity fraud. 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 just been about planning for the things you can never plan for. We know 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 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
Be a boss and ask yourself a couple of hard questions about planning for the things you can never plan for and how they will make sense in your own business to implement.
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.
