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How secure is your business?

Guest Blog

How secure is your business?

Graham Smith

Today's guest blog comes from Sarah Butler of Bark Financial and gives great advice about protecting your business against financial loss.

So many small or medium sized business owners run their businesses with little or no financial protection. They insure all the things that are required of them but often overlook or perhaps avoid, insuring the one thing that is essential to their business. Themselves and their employees!

The death or serious illness of a business owner or key person will result in financial and emotional disruption to a business, be it loss of revenue, loss of skills or loss of direction. Insuring business owners, key personnel and major shareholders bridges this gap and provide financial stability to a business during such challenging times.

Sole traders are particularly vulnerable if they fall ill and do not have sufficient resources to fall back on, especially when starting out with a new business.

Lucy started working for herself two years ago when she set up Petal & Perfume Florists. Her business is growing and her income is erratic because she still invests profits back into the business. She employs two part time staff to help her. Lucy wisely took out a critical illness insurance when she started the business because she wanted the peace of mind that if she were to be diagnosed with a serious illness, this insurance would provide her with a lump sum.  She knows that this money would be enough to help keep her and her business going if she were seriously ill, buying her the time and means to concentrate on her recovery.

Business protection is especially relevant for partnerships and limited companies.  

Monica was a partner in a firm of solicitors with a formal partnership agreement in place. When Monica died recently, her husband John inherited her share of the business. Unfortunately, the remaining partners do not have the money to buy back Monica’s share of the business from John. There is now a real concern about whom they could end up in business with; John may decide to join the business (but would he have the right skills?) or he may be forced to sell the inherited shares to someone else entirely if the partners can’t buy him out. Ensuring the correct protection is in place should be a fundamental part of all partnerships to protect everyone’s interests.

Joanna, a director and 30% shareholder of MM Designs Ltd became seriously ill six months ago and no longer able to work. She now wishes to leave the business & dispose of her shares in the company. The directors insured that eventuality several years ago so other shareholders can now make a claim on this insurance policy and they will receive a lump sum that can be used to buy out Joanna’s shares. The result is the remaining directors retain control of their business and Joanna receives a lump sum to exit the business.

These are fictional examples to demonstrate the importance to business owners of succession planning and making sure that key contributors to their business are properly insured in the event of death and serious illness.

For further information please contact Sarah Butler at Bark Financial. 01425 461764, 07793 614304 or sarah.butler@barkfinancial.com