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Financial Steps to Protect Your Family

Whether it's medical expenses, unexpected home repairs or a cash flow crunch in the business, there are a variety of financial emergencies that entrepreneurs may face. "One of the key mistakes business owners make is spending a lot of time on their business and neglecting their personal finances," says Liran Hirschkorn, founder of, a national independent life insurance agency based in New York.

Therefore it's important to prepare for any scenario. Here are a few financial planning suggestions to help business owners protect their families and both business and personal finances.

Create an Emergency Fund

Poor cash flow is a common pitfall that causes businesses to struggle - and even fold completely. In addition to reviewing business cash flow, business owners should review their personal finances.

“You want to create a moat around your personal financial life.”

— Liran Hirschkorn, founder of

Building an emergency fund for one's family is a cornerstone of financial stability. "Rules for an emergency fund should be only to use it in a real emergency - one serious enough to put your business at risk, or you not being able to pay the mortgage," Hirschkorn says. "This fund should ideally be something you put away and forget about, and hopefully never have to use." Hirschkorn recommends saving up enough money to cover up to 12 months of living expenses.

Short- and Long-term Disability Policies

There are a variety of short- and long-term disability plans that can help business owners with their financial needs during a crisis. Before choosing a plan sold by an insurance agent or company, Hirschkorn recommends that business owners research and compare prices, and determine the timeline during which they anticipate needing funds.

If a business owner is unable to work due to illness, an injury or a newborn, a short-term disability policy can generally cover expenses for three to six months. A long-term disability policy will help replace steady income to cover more catastrophic events that last a longer period of time, such as lengthier or permanent disability.[1]

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Life Insurance

As part of the financial planning process, business owners also need to ensure that they have the right amount of life insurance coverage. Before taking out life insurance policies, business owners should evaluate their outstanding assets and liabilities, including their mortgages, to decide how much replacement income would be necessary to cover bills. Instead of using a specific formula or percentages, Hirschkorn recommends sitting down with one's spouse or partner and coming up with a figure that would sustain the family's lifestyle.

AFunded Buy-sell Agreement

If there are one or more partners in the business, Hirschkorn recommends establishing a buy-sell agreement, which allows the remaining partner(s) to buy out a deceased partner first.

However, it's not enough to just have a buy-sell agreement established, Hirschkorn cautions. Business partners should also have a life insurance policy for their business partner in order to pay for a buy-sell agreement if that partner dies.

Create a Wall of Protection

Regardless of what decisions are made when it comes to insurance and savings, it's important to create what Hirschkorn calls "a wall of protection." "You want to create a moat around your personal financial life, which includes your businesses, to protect it from many external forces like health issues, taxes and fluctuations in the economy to have the best chance of success," he says.

Business owners can use a trusted online foreign exchange service when sending money overseas to build an emergency fund, pay for insurance premiums and cover other costs related to protecting their families' financial health.

[1] "Weighing the Odds of Disability, for Insurance Purposes," Oct. 19, 2012, The New York Times

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