Leave no man behind

It sits there in the corner of the office. It is probably the most over-engineered piece of machinery that has been designed to do a simple thing.

Its raison d’etre is to copy documentation. Yet it is probably more insured than some of the individuals who use it. It is the photocopier and many companies would grind to a halt if it were broken.

Look at the people who use it. All too often a company will forget to plan for the loss of arguably the most important assets of any firm – the key personnel within it.

A simple question can be asked: “How well is your business protected following the death or disability of key individuals?” Events often occur when least expected and can cause potential loss of profits, interrupt cash flows which in turn can mess up loan repayments and in certain circumstances can even change the ownership of the company.

Business protection can be put in place to ensure that money can be made available to help weather these storms. Arrangements can be structured in a number of ways so that the business covers what it considers to be vital.

These can be shareholder or partnership protection, key person protection or loan protection.

So looking first at shareholder protection, again you have to ask a simple question: “What would happen to your share of the business were you to die?”

One possible answer would be that the surviving shareholders would purchase the share from the deceased’s estate. But it is not always as easy as that. Do they have access to the necessary funds to do this? Those who inherit your estate may wish to involve themselves in the business. If this was the case, would the business want them to participate and do they have the requisite skills to do so?

If your client suffered a heart attack and decided to retire, would the business have the funds to purchase their share?

In order to protect against this, life cover can be taken out by each of the directors and placed in trust for the benefit of the other shareholders. If this was not in place and the personal funds were not available then the shareholders may have to take out a loan in order to proceed. This could have a detrimental impact on cash flows and what would happen if the loan were refused?

After share protection, let us take a look at the value placed in key person protections. Often businesses have an individual or two who are key or indispensable to the success and profitability of a company.

Their death can affect a business in a number of ways, including:

• A loss of confidence in the business especially if an individual has been the driver for innovative thinking for their customers