A Tale of Two Injectors
*This is a fictional account.
Occupation: NP, Injector
S-Corp Income: 190,000
Occupation: PA-C, Injector
S-Corp Income: 200,000
Scenario: Michael and Laura have been in business together since 2019 and ended the year posting a 540,000 net income. They are both the primary profit earners in the business and collectively bring in revenue of almost $3,000,000 a year and have a new injector, front desk person, an inventory manager and an aesthetician.
Adverse Event: Michael has noticed shaking in his hands on and off, becomes worried and decides to go to the Doctor in order to see what is going on. He is diagnosed with multiple sclerosis. He starts to undergo treatment, however, after a few months he is no longer able to inject.
Problem: Laura and Michael did not do any business succession planning, and although they do have a buy-sell agreement in place it was not funded. Laura is faced with continuing Michael's salary though he is not able to produce for the business anymore and the business finances become strained as he is owed a salary.
Solution: The business partners sit down and have a conversation after about 10 months of Michael trying to help out but the revenue has dropped significantly and the new injector has had to take on more responsibility but it is taxing Laura to train her without much support. Laura and Michael reluctantly agree to take money out of their cash reserves to buy Michael out of the business and it runs their practice a devastating financial blow.
Outcome: Laura eventually bounces back financially, but the adverse situation set her practice back years and she was not able to make capital improvements or put money back into the business to the scale she would have liked since she had to buy out Michael.
Better Solution With A Strategy: If Michael and Laura had a buy-sell agreement funded with a disability buy-sell policy, as soon as he was under the Doctor's care, he could have went on claim, received a lump sum portion for his stake in the business and the financial standing of their Medspa would not have been affected.
Don't have a buy-sell or one-way buy-sell agreement in place that is funded? It is never too early to plan, however it can be too late.
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Principal & Founder
Tracey Donavan Insurance & Retirement Services