Business Succession Planning Can your business survive without you?

2 Agenda Small Businesses in the U.S. Planning for When You’re Not Here The Buy-Sell Solution The Value of Life and Disability Insurance How it Works Taking the Next Step

3 Source: U.S. Dept. of Commerce, Bureau of the Census; Advocacy-funded research by Kathryn Kobe, 2007 U.S. As posted on January Small Business Effects on the Economy The estimated 26.8 million small businesses in the United States: Create 75% of new jobs Employ 50% of the country’s private workforce Represent more than 97% of all exporters of goods Represent more than 99% of employers Generate the majority of innovations (patents) that come from United States companies

4 Why Do Small Businesses Fail? Improperly plan for growth Management of financial statements No plan for a succession of ownership

5 Source: LIMRA. “Small Business Owners: 2009” A Closer Look 85% of all U.S. firms are small businesses Only 25% have formal retirement succession plans Only 35% have formal succession plans in the event of death The Value of Life and Disability Insurance Only 40% with plans use life insurance

6 What Will Happen to Your Business? When your retire? If you become disabled? When you pass away?

7 Preserving Your Life’s Work It’s all about… Control Choice Continuity

8 A Written Buy-Sell Agreement Contains: Who will buy/sell? When will the transaction happen? At what price will the business be purchased? Stated terms of the transaction

9 Valuing the Business Appraisal Stated price Formula

10 How Will the Buy-Sell be Funded? Management or family can borrow the funds Your company can save for it You can arrange to buy the business interest under an installment basis You can acquire life and disability insurance coverage

11 Consider Life Insurance Provides the cash needed immediately Prevents drain on business profits Helps to quickly turn a non-liquid asset into a liquid asset The policy’s death benefit can be designed to increase over time to reflect the growth of the business 1 1 Additional underwriting requirements may apply; no guarantee that insured(s) will qualify for increased death benefit protection.

12 Disability Buy-Out Insurance Minimizes impact to the bottom line Can be used to help replace a portion of the disabled owner’s salary or purchase his interest Disabled partner will likely continue to draw salary or K-1 income Can be used to pay overhead and expenses

13 Types of Buy-Sell Agreements Entity Redemption The business itself is the buyer Cross Purchase The owners buy from each other directly Between two or more owners Unilateral Buy-Sell Between the owner and a key employee or family member in business

14 Which Plan Makes Sense?

15 Stock Redemption / Entity Agreement The income tax-free status of life insurance death benefit proceeds is very valuable. To ensure that the death proceeds of an employer-owned policy can retain this benefit, it is essential to comply with the requirements of Internal Revenue Code Section 101(j). Owner A Owner B Owner C Business Estate of Owner A Business Interest Purchase Price Insurance Company Premium Payments Insurance Proceeds The Business is the owner and beneficiary of a policy on each owner

16 Cross Purchase Agreement Owner AOwner B Estate of Owner A Premium (On life of B) A owns and is the beneficiary of a Policy on B B owns and is the beneficiary of a Policy on A AGREEMENT Life Insurance Policy on Owner B Life Insurance Policy on Owner A Insurance Company Premium (On life of A) Insurance Proceeds (Life of A) Business Interest Redemption Price

17 Unilateral Purchase Agreement Protégé Estate of Owner A AGREEMENT Insurance Company Premium Payments Insurance Proceeds (Life of A) Business Interest Redemption Price Life Insurance Policy on Owner B Life Insurance Policy on Owner A

18 Benefits of a Funded Buy-Sell Assures the business interest can be purchased at fair market value Ties key people to the business Develops management loyalty Helps to ensure competent successor management Provides employees with more job security Helps open the doors to future financing

19 Getting Started Define your goals Evaluate the alternatives with your financial representative, qualified attorney and accountant. Implement the strategy to protect your business

20 CLVL24027 L [0516] © 2014 METLIFE, INC. PEANUTS © 2014 Peanuts Worldwide Not A Deposit Not FDIC-Insured Not Insured By Any Federal Government Agency Not Guaranteed By Any Bank Or Credit Union May Go Down In Value The information contained in this document is not intended to (and cannot) be used by anyone to avoid IRS penalties. This document supports the promotion and marketing of insurance or other financial products and services. Clients should seek advice based on their particular circumstances from an independent tax advisor since any discussion of taxes is for general informational purposes only and does not purport to be complete or cover every situation. MetLife, its agents and representatives may not give legal or tax advice. Any discussion of taxes herein or related to this document is for general information purposes only and does not purport to be complete or cover every situation. Tax law is subject to interpretation and change. Tax results and the appropriateness of any product for any specific taxpayer may vary depending on the facts and circumstances. Clients should consult with and rely on their own independent legal and tax advisors regarding their particular set of facts and circumstances. Like most insurance policies, MetLife’s policies contain charges, limitations, exclusions, termination provisions and terms for keeping them in force. Contact your financial representative for costs and complete details. Metropolitan Life Insurance Company (MLIC), New York, NY Securities products offered by MetLife Securities, Inc. (MSI) (member FINRA/SIPC), 1095 Avenue of the Americas, New York, NY MLIC and MSI are MetLife companies.