by Ian Spencer
It appears that most Australian small business owners would love to test the relation-ship boundaries that they have with their business partner’s significant other, as they have no plan in place to handle an involuntary exit of their business partner. The 1997 Monash University survey found 70% of SME owners thought succession was important but only 12% had a documented plan. The 2003 RMIT survey found that 27% of family business owners were relying on the continued ownership of the business to fund their retirement
Probability Of At Least One Owner, Where All Owners Are Aged 35, Dying Or Becoming Totally And Permantently Disabled Before Reaching Age 65-
OWNERS PROBABILITY:MALES PROBABILITY:FEMALES
2 43 in 100 31 in 100
3 57 in 100 – 57% 42 in 100 - 42%
4 68 in 100 52 in 100
5 76 in 100 60 in 100
6 82 in 100 67 in 100
Source Australian Life tables. 1995- 1997. MLC Class 1 Occupation TPD experience
JUST PAUSE AND LOOK AT THAT TABLE AGAIN.
If you have a male business partner then there is a 43 % change of them dying or becoming Totally & Permanently Disabled. If you have 2 partners, that’s a 57% chance for men and 42% chance for women. Many of you reading this will spend your advertising dollars on direct mail, which has a 2- 5 % average success rate; so shouldn’t you look to cover the much more likely situation of your partner not being able to work the business????
I still see business owners ignoring this possibility as-
Ø IT WILL NEVER HAPPEN TO ME, [an often quoted reason, which doesn’t change the statistics in the table above.]
Ø It’s too hard to solve, “what's the business & your share worth”...
Ø It gets bogged down in the process between the accountant’s valuation, the lawyer’s agreement, the financial planner’s insurance cover, etc...
Ø The tax implications and asset protection issues of how any cover is held, is to hard...
Ø This is still an ongoing newer ‘specialist’ area and where can you find a specialist that can solve all of this??
Ø I’m a sole trader so what about me... Be aware that Every working Australian has a 1 in 3 chance of becoming disabled for more than 3 months before turning age 65.
Information should be used as a general guide only. Professional advice should be sought before making any investment decisions to secure the future of your business.
Ian Spencer is a member of the Taylor Financial Group