As a manufacturing business grows and economic conditions change, its value, workforce, and reliance on key people can shift. Business protection strategies need to keep pace with those changes.
Manufacturers tend to be thorough and prepared, yet even well-prepared businesses may have opportunities to strengthen financial security for their owners, key employees, and the company. Many business owners are already reviewing their business protection strategies and increasingly turning to financial professionals for guidance, education, and support.
Principal® data highlights three priorities: protecting the people who keep the business running, keeping business valuations current, and choosing financial partners who understand manufacturing.
Given the technical nature of their industry, perhaps it’s no surprise that manufacturers are often diligent planners. Business owners tend to have robust business protection plans in place to help cover the company during unexpected challenges. Two of the primary areas manufacturing business owners seek to protect are themselves and the employees that keep the business running.
Business owners in the manufacturing industry commonly protect themselves and their families with individual insurance. Across all industries, manufacturing owners are the most likely to have both individual life and disability income insurance in place.
Of course, business owners aren't the only ones who keep the company moving forward. Key employees take on intensive roles or have highly specialized skills. If something happens to one of these workers, business operations can be disrupted.
Manufacturing business protection gaps:
- One-third lack Key person disability insurance
- Nearly 40% lack Key person life insurance
- Nearly 60% lack Overhead expense insurance
Having these types of coverage can help to keep the company running in the unfortunate event of injury, sickness, or death of a key employee or owner. There are opportunities to shore up these protection plans and strengthen the business.
Question for business decision makers: If an owner or key employee dies, or is too sick or hurt to work, would the business be impacted financially?
Business protection planning extends beyond insurance. Keeping a business valuation current can help owners understand whether their protection and succession strategies still reflect what the company is worth. Whether formal or informal, over two-thirds of manufacturers have completed a business valuation—nearly one-third have not.
At Principal, we have a team of experienced professionals that help business owners know what their business is worth and tie it all together for a smooth transition. We have completed informal business valuations (IBVs) for more than 15,000 businesses since 2015—nearly 10% of which were manufacturing companies.
Knowing the current value can give business owners a clearer foundation for planning. By reviewing assets and earnings, owners can estimate what their business is worth and use that information to help determine the appropriate level of business protection insurance, evaluate succession options, and prepare for future ownership transitions.
While a formal valuation may be needed for certain planning decisions, informal valuations can also help owners pressure-test whether their business protection and transition strategies reflect its current value.
Questions for business decision makers: Is the business value reflective of growth the company may have had in recent years? Do they have what they need to protect that value?
Manufacturers are more likely than their peers to seek out and rely on financial professionals to help plan and support the future of their business. Nearly nine out of 10 manufacturing businesses use a financial professional, as compared to the average of seven in 10 across all other industries.
These leaders know what they want in a financial professional. In fact, they have ranked the most important factors they consider when searching for a partner to work with:
- Competitive cost or fee structure
- Wide range of services and solutions offered
- Strong communication skills
- Experience with manufacturing businesses
- A proven track record
Manufacturers are proactive about planning for the future, but a few opportunities remain; among them, strengthening protection for key employees and keeping business valuations current. Addressing those gaps can help business owners protect the people and value that keep their companies moving forward.
Talk to your financial professional to learn more about which solutions may be right for your business. Don’t have one? We can help.
For additional research and industry perspectives, visit principal.com/ownerinsights.
