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Small Business Risk Management

Risk management is essential for small businesses to protect their assets, finances, and operations. Small businesses are more vulnerable to risks than larger businesses, and have fewer resources to fall back on if something goes wrong. Here are some risk management strategies for small businesses:
Risk identification
A systematic process that involves identifying the sources, likelihood, and consequences of different types of risks

Risk mitigation
A plan that seeks to limit the financial impact on the company if something goes wrong
Monitoring
An essential part of risk management, often handled manually in smaller organizations
Business continuity planning
A formal system and structure that helps reduce the risks to your business, and provides a defined path for recovering from potential threats

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Key Man Insurance

Key man insurance, also known as key person insurance, is a type of life insurance that businesses purchase to protect themselves from the financial impact of losing a key employee. The key person is typically an individual whose skills, knowledge, experience, or leadership are considered crucial to the success and stability of the business. This insurance provides a financial safety net to help the business recover from the potential loss of a key individual due to death or disability.

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Business Valuations

Business owners are sometimes so focused on the day-to-day operations of their businesses that they overlook a large component of their overall wealth — the value of their business. There are several occasions when an owner should consider having a formal valuation performed for their business.

Through a formal business valuation process, you will learn what the fair market value of your business is, or what a hypothetical buyer would be willing to pay for your business. You should have a business valuation handy at all times for a variety of important business and personal financial planning reasons such as planning for a sale of the business, retirement, estate planning or business strategy. And when you have a valuation performed, you want one that is accurate and will hold up in case of litigation.

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Cross-Purchase Agreement

What Is a Cross-Purchase Agreement?
A cross-purchase agreement is a document that allows a company's partners or other shareholders to purchase the interest or shares of a partner who dies, becomes incapacitated or retires. The mechanism often relies on a life insurance policy in the event of a death to facilitate that exchange of value. A cross-purchase agreement is usually used in business continuation planning, where the document outlines how the shares can be divided or purchased by the remaining partners, such as a proportional distribution according to each partner's stake in the company.

Cross-purchase agreements are a particular type of buy-sell agreement.

KEY TAKEAWAYS
A cross-purchase agreement allows a company's partners or other stakeholders to coordinate continuance of a business.
The agreement involves the purchase of life and/or disability insurance policy in case a stakeholder dies or becomes incapacitated.
In the case of premature death, a life insurance policy will allow the other owners to buy out the deceased's shares.
Where there are multiple partners involved, the complexity of a cross-purchase agreement compounds as policies much be purchased by each with all others involved as beneficiaries.

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