Protecting Your Business

Talk to any business owner and ask if their business is insured and the automatic response is, yes.

Often or not they are referring to insurance against the risk of fire, theft, flood and liability. But then ask what would happen if one of the business owners or key members of staff passed away unexpectedly, or was diagnosed with a serious illness that meant he or she could never work again? Whilst buildings can be rebuilt and stock replaced, the same cannot be said of an individual.

Research carried out on the Institute of Directors in 2011 found that 39% of businesses could not survive more than 18 months following the death or critical illness of a key person. A key person could be one of the owners, an essential employee or even a major customer.

Further research on limited companies showed that:

• 95% of businesses had at least one key individual
• 43% of businesses had unprotected corporate debt
• 33% of businesses had no Share Protection in place
• 58% of businesses had no formal agreement to establish what would happen in the event of the death or critical illness of a business owner

Protecting your business can be split into three distinct areas - key person protection, partnership or shareholder protection and loan protection.

Without any of the above, let me paint a picture of what could happen.

Imagine a company with two partners, brothers perhaps. A business which has been built up over many years and then handed down to the two sons. Unexpectedly one of the brothers dies. Whilst tragic, you may think that the surviving brother could continue with the business, especially as they had both been involved in running the company and their knowledge was equal, as was their input into the business.

However, the widow has now inherited half of the business and has debts and a mortgage that she wants to clear as her husband had not taken out adequate life insurance. She has no interest in the company as she has never taken an active role. She needs financial security for her family and the only way is to sell her shares in the business.

Unfortunately this means one of two things. As the brothers did not have any protection in place in the event of either of their deaths, the only way to raise the money is to find a new partner willing to buy into the business or for the surviving brother to obtain a bank loan. Neither option came to fruition.

This resulted in the surviving brother working with his new partner who did not want to be in the business. This in turn caused many problems.

This scenario is a common story and one that can easily be avoided by obtaining independent financial advice. Protecting your business should be part of your business plan and without adequate cover everything you work to achieve is at risk.

Don't be one of the percentages listed above.

For more information contact Jeremy Leslie-Smith on 01202 840900 or

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