10 Questions you need to ask yourself before setting up Business Protection
1. What is your budget? It doesn’t matter what you need if you can’t afford it. Most businesses can’t afford “ideal world” protection because they don’t live in an ideal world. Set a budget that you can afford for now on an ongoing basis. Whatever that budget is...some protection is better than none at all.
2. What is your biggest priority? In most cases it’s making sure you and your family or dependants don’t suffer financially if you die or suffer a critical illness and your business folds as a result. Second to that is usually business survival. Prioritising means you can take care of the most important things first.
3. Who is crucial to the ongoing success of your business? Is it just you? Are you a one person band? If YOU can’t work is there no revenue? Can you get someone else to do your work if you are ill? Are there people in your business that are crucial to your business functioning on a daily basis? Sales, admin, financial, IT. If X didn’t turn up on Monday morning what impact does that have...what if they don’t turn up for 6 months or ever again?
4. What is your business worth with you and without you? It’s one thing selling a business while you still own and run it, another thing entirely someone else selling your business if you are unfortunate enough to pre-decease it. Will your beneficiaries get fair value? Will your staff stay on when approached by head- hunters seeing an opportunity to poach quality staff nervous about their security of tenure? Will the bank call in loans or overdrafts? Will you be forced into a sale as a result of disaster striking a key person in your business?
5. Do you want to be in business with your co shareholders beneficiaries? If a shareholder dies and leaves the shares to their spouse, congratulations, you are in business with them whether you like it or not. They may have a controlling share and revert to salary only remuneration cutting off dividend revenue or decide to sell to a competitor. (UK Law)
6. Do you have a share/partnership agreement? If you do great but an unfunded partnership or shareholder agreement isn’t worth the paper it’s written on. It’s all very well saying “I’ll buy your shares in the event of...” but you need the funds to do it. Going to the bank manager and saying “My MD/FD?Sales Director etc. has just died, will you lend me the money to buy the shares from their beneficiary please?” isn’t a plan and guess what the most likely answer is.....no.
7. Do you have directors loans or a building in a SIPP? Directors loans and pension arrangements are repayable to the estate on the death of a director. This can be a massive hit to cash flow and try selling half a building. (UK Law)
8. Have you signed any personal guarantees against loans or overdrafts? If so the last thing you want to happen is the bank turning up on your doorstep saying “I’m sorry about the death of your partner Mr/Mrs spouse, but they signed a PG so I’m afraid we’re selling your house” It’s basic and it needs covering off.
9. What is your exit/succession strategy? Do you plan to sell, pass on the business or work forever? Most business owners are doing it for a better life for themselves and their loved ones which eventually means passing on the fruits of your labour. It’s good to have an exit strategy, that “deck chair on the beach” plan. It’s also smart to cover off the possibility of an unplanned exit.
10. Who should I really talk to about Business Protection? An expert, you don’t ask a GP perform brain surgery on you, you need to speak to someone that does Business Protection day in and day out. They have their finger on the pulse of current products and solutions. You can’t be good at everything so seek out a specialist and take advice.
I arrived in the UK in 1985 from NZ and spent the next 15 years gigging, recording and doing part time jobs of huge variety until I met my wife and our first child was on the way. Then, like Ziggy, I had to break up the band and get a real job. I was naturally good with people and like people and social interaction generally so moved form sound design into sales into business development in the financial services industry. After qualifying as a mortgage broker I then passed my CeFA exams but took the decision to specialise in Business Protection as you can't be good at everything and most IFAs do this as an add-on. It's all I do, day in and day out so I have my finger on the pulse of current products, trends and innovation. Key Person, Share Protection, Relevant Life Policies, Private Medical insurance, Group policies and business owners and their families are my speciality. I love my job because it genuinely helps people at their worst time of life. I love life, people, my family, friends, music, my job and helping people.