Is Your Business Protected?
Here are 3 practical steps you can take.
Have you considered what would happen to your business if you or a key person became ill or passed away? It is something that many business owners overlook. Yet, the potential consequences of not protecting your business could be huge.
There are practical steps you can take to ensure that the business can continue operating should the worst happen.
- Key person insurance
Key person insurance would pay out a tax-free lump sum or regular income to your business if someone named within the policy is diagnosed with a serious illness or passes away.
This type of insurance is designed to protect a business if certain employees are essential for the success of the company. This could include you, as the business owner, and others. It can be especially useful for small businesses, where there may only be one person who can complete specific tasks and their loss could have major consequences.
According to Legal & General, 94% of businesses say they have at least one key person. 70% said they would cease trading in less than two years if they lost a key employee.
The payout from a key person insurance policy can help the business replace lost profits or recruit someone to fill the role if necessary.
If you think key person insurance could be right for your business, consider who contributes to the success of your firm. This could be your leadership team, someone with technical knowledge, or a long-standing employee who is crucial for keeping operations running smoothly.
You should also consider what level of cover your business would need to be secure and the deferment period of the policy. Take some time to review a policy you are considering, to understand how comprehensive it is and whether it provides adequate protection.
While you are considering key person insurance, you may also want to review if group relevant life insurance could be right too. This would pay out a lump sum to an employee’s family if they passed away while employed at your business. You can choose who is covered and the level of insurance, which is often linked to an employee’s salary.
It can be an effective way of ensuring your own family would be financially secure, as well as giving employees peace of mind.
- Shareholder protection insurance
Who owns shares in your business, and what would happen if they passed away? Could you afford to purchase their shares?
Considering death is difficult, but it is important to ensure your business has the right protection in place.
A shareholder protection policy is a binding agreement between shareholders. It ensures the shares remain in the business, rather than being inherited with the deceased’s other assets or sold. The policy also ensures that the business has the cash to buy the shares if necessary, which can protect your business if the worst happens.
It can also be beneficial to the deceased’s family, who will have a willing buyer of the shares at a time when they may be more in need of liquid assets or have no interest in being involved in the running of the business.
- Business Lasting Power of Attorney
It’s important to consider what would happen to your business if you were unable to make decisions. This could be temporary, such as if you are taking a holiday, or long-term if an accident or illness affects your mental capacity.
If this happened, would your business be able to operate? Could tasks like authorising bill payments or paying salaries still be completed? A business Lasting Power of Attorney (LPA) can protect your interests and those of the business.
It would give someone you trust the ability to make decisions on your behalf. If you did not make a business LPA and were unable to make decisions, the Court of Protection could appoint a deputy to act on your behalf. As well as taking potentially months to appoint, which could leave your business in a vulnerable position, it may not be the person that you would choose.
A business LPA can be part of your continuity plan to avoid business disruption.
In some cases, it is possible to have just one LPA covering both your personal and business affairs. However, you should consider if having the same person is appropriate, as it could cause a potential conflict of interest, and they may not have the necessary skills. While you may want your partner to handle your personal assets, would they feel comfortable making business decisions too?
If you have questions about any of the protection topics covered within this article or have any other financial planning concerns, please telephone us on 01676 523 550 or email us at hello@brigroup.co.uk.