One in seven of the workforce is self-employed, and the number of people working for themselves has increased by 30 per cent since 2000.
But how can advisers successfully pitch Business Protection to the solo entrepreneur?
Especially when so many sole traders (wrongly) assume, ‘if I die, the business dies with me’.
Why sole traders need a succession plan
When a sole trader dies a number of financial and contractual obligations still need to be fulfilled – regardless of whether the business carries on trading or is wound down.
Without succession planning, these will usually fall to a spouse or the next-of-kin, and can include:
* Finance – outstanding overdrafts and finance will need to be transferred (or paid off) and the new owner will be expected to brief investors on the ability to meet existing commitments.
* Clients – ongoing contracts will need to be assessed; the family or estate may need to recruit a sub-contractor to fulfil existing commitments, or employ additional staff. Alternatively, penalties could be imposed for the non-delivery of goods or services.
* Leased premises –the landlord will need to be informed of the sole trader’s death and a new lease may be required. If the business is wound down, significant penalties might need to be paid if the premises are no longer needed.
* Employees – 9% of sole traders employ staff using the PAYE system. Even though the name of the business may have changed,Transfer of Undertakings (Protection of Employment or TUPE) regulations mean employees still have a right to continued employment.
If the new owner intends to cease trading then staff will be entitled to redundancy pay.
Any outstanding litigation and tribunal claims will continue, so the estate or family will be expected to deal with these as well.
* Health and safety – whoever takes over responsibility for the business will be held accountable for all health and safety matters?
They will need to make sure all regulations are being met, are risk assessed and properly documented. This may need to be outsourced.
* Insurance – any insurance policies will need to be transferred into the name of the new ownerand might require specialist advice.
* Updating the trading name – all relevant paper work (invoices, letterheads etc.) need updated e.g. Steve Jones t/a Jones Construction will now trade as Jane Jones t/a Jones Construction.
Key Person cover (written in trust, on the life of the sole trader) can provide the deceased’s family with the money needed to meet these obligations.
