Just Do It: Independent Financial Advisor

Business Protection

Very often Business Protection is overlooked. A recent study by Scottish Provident discovered that only 10% of SMEs have business protection.

A business owner is just too busy making profits in good times or fighting fire in a recession to look into areas that may have catastrophic effects on a business going forward.

There are three main areas of protecting a business, protection in the event that a key person dies or becomes critically ill, debt protection and succession planning following the death of a shareholder/partner/owner.

1) Key Person Insurance

Most businesses have tangible assets like premises insured; however business owners suffering a critical illness would have a greater impact on the business profits than a fire.

Who holds valuable positions in the business – this could be a founder who has the vision to drive the business or the sales person without whom you would not have a business?

Key person protection will enable the business to protect itself from the financial consequences of the key person’s death or absence from work due to long term sickness or critical illness.

A combination of protection plans may be used to protect the business in these circumstances and ensure your business can progress should these unfortunate circumstances occur.

2) Protection for business loans

Business Loan Protection is a type of insurance designed to repay all or part of a business’s debts upon death of the life insured.  It is taken out to provide cover against death or a critical illness (where that option is chosen) that could adversely affect a business’s ability to repay its borrowings.

This type of insurance is often sold by a bank arranging the associated finance, however using an independent financial adviser who can research the whole of the market for the most competitive cover.

Business Loan Protection will ensure the business is protected against situations like these that could cause a business to struggle to carry on with its day-to-day operations and make debt repayments on time.

3) Partnership/Shareholder Protection

One of the great risks of a business partnership is that one of your colleagues may die, with his or her share of the business passing to their estate on death. That person may have little interest in the business or – at worst – may be hostile to your objectives.

Equally a partner who suffers a serious illness may want to retain the option of continuing in the business or be compensated for their exit from the business.

The safety net is a pre-arranged scheme to ensure the surviving shareholders have enough funds to buy out the interest in the business, or compensate the deceased’s dependants. Far too many businesses don’t have a succession plan in operation and it’s important to set this out from the start with a solicitor to make it clear what will happen in the event of a shareholder/partner/owner death.

A correct business protection will enable the survivors to purchase the deceased shareholding of the business. This should be set up with the correct legal arrangement such as a double option agreement that allows either party to buy and sell shares in the event of death.

If you have a business protection query, please call Elaine on 0161 233 0823, email elaine.porter@justdoproperty.co.uk