Who’s holding your business together?
When you run a business, a lot can hinge on one or two individuals. Often to the point where the business could not survive without them. Does your business recognise this?
Think of what would happen if you, your business partner, or a key employee could no longer work. How long would the business survive? Your business needs a back-up plan in case something happens to the business owner or key employees.
And if you are a small business, the impact of something happening to you as the business owner, may be greater for your business or family. In many cases, a small business operator’s business is also their main asset, making it even more important to devise a comprehensive protection plan.
Strategies for business protection
Business Succession Planning
Protecting the key stakeholders in a business is paramount, the business owners should have an exit strategy should something happen to them. This is generally known as Business Succession or Buy/Sell cover. This type of insurance is designed to provide protection for the remaining business owners and the family or estate of the insured person in the event that the insured person (business owner) dies or is unable to continue working through sickness or injury. Business owners will generally exit a business because of one of four reasons (the 4D’s):
While divorce & departure are generally voluntary exits, death and disability are not. Business succession cover puts in place appropriate exit strategies for each of the 4D’s, usually in conjunction with the appropriate support documentation (usually in the form of a buy/sell or similar agreement). The alternative to business succession cover is for the surviving business owners to dig into their own pockets and fund the buyout of the departing business owner’s family or estate, or continue to run the business with the family or estate of the departed business owner. Would this be a viable solution for your business?
Key Person insurance
People are your business’s most important asset. Key Person cover can help to ensure your business’s financial position is not adversely affected should the worst happen.
Key person cover provides the business with funds should an insured key person die, or become disabled or ill. What would happen to your business revenue, customer service, relationships with support partners if a key person of your business was no longer there? Generally key person protection is provided through:
- Term life & TPD insurance
- Critical illness insurance
- Income protection insurance
Think about the key people of your business, what they contribute to the business, and what effect it would have on your business if they departed unexpectedly. Key person cover is not as black and white as what other risk insurance strategies may be, so it’s important to get the right advice when your business is looking to protect its key individuals.
Key Person insurance and Business Succession planning has tax and legal implications to the business and business owners, so it is best to deal with qualified accounting, legal and risk insurance professionals when setting up business insurance protection strategies.
Business Debt Cover
Life, like business, can be uncertain. Business Debt cover can help protect your business from losses if the worst happens. What is business debt cover? Simply, it is protecting a business from potential financial loss due to the inability to pay debt, or the forced repayment of some or all of outstanding debt, arising from the loss of the life insured. This cover may be particularly important for small business owners, as they tend to be highly leveraged into their homes, investments and businesses.
Business Expense Cover
Particularly relevant for the self employed, or small business, Business Expense insurance should be a key component of every business risk management strategy. The concept of business expense insurance is relatively straight forward as most business owners have taken on some debt and signed a lease, however many sole traders or small business owners who are setting up their business often fail to include this cover in their business plan as minimizing the burden on cash flow is seen to be important.
People in this position are particularly exposed, as their sole source of income is reliant upon their ability to operate their business. In the majority of cases, they simply don’t have the reserves to draw upon if they cant work.
Can we help your business?
The risk of death and disability confronts everyone, and business owners have special needs in this area. It is important to address these issues before it is too late. To be financially secure, both at work and at home, business owners need to plan for the unexpected, so contact us to help your business put in place risk mitigation strategies to plan for the future.
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