For many small business owners – whether they are financial advisers themselves or their small corporate clients – there is a perennial balance to be struck between earnings and expenses.
Costs take profit out of the bottom line and, as the old maxim goes, ‘turnover is vanity, profit is sanity’. Therefore it is understandable why many owners do not consider protection to be a business imperative but an expense.
Already the home or office space will be insured against fire, loss or theft; pensions are paid out, professional indemnity is paid for, along with all the various regulatory fees and taxes that apply, regardless of the industry in which one works.
So is business protection just another expense?
“Expensive relevant to what?”, asks Johnny Timpson, protection specialist at Scottish Widows in response to this question.
“Given that, as a sole trader, you are your business, and there is no distinction between your personal and business assets, nor your personal and business liabilities.”
He continues: “Being self-employed, you have no entitlements to statutory sick pay, limited entitlement to working-age welfare benefits, and will be unserved by Universal Credit, as it does not support the self-employed and those with fluctuating earnings particularly well.”
Mr Timpson points out a self-employed client may seem the “simplest of business protection management opportunities”, but as the adviser drills down into the financial detail, it will become clear that a bigger discussion on personal and business risk and resilience is required.
Moreover, as Andy Simmons, senior protection specialist at Vitality Life, says: “Small and medium-sized firms are often highly dependent on a few specialist individuals, and key person cover is designed to help protect the business in the event of death or severe illness of one or more key employees.”
Advisers doing their fact-finding missions will be able to ascertain the business risks of their self-employed or small employer clients, and be able to make the distinction between the perceived expense of a monthly premium and the long-term expense of replacing or rehabilitating a key person – especially the client themselves.
Isn’t income protection enough?
Some small business owners might have taken out income protection in case they get ill or unable to work, so they can cover their living expenses and lighten the financial load on their family.
For sole traders and the self-employed, business protection may not be the right choice, as Richard Kateley, head of intermediary development for Legal & General, explains.
“As the business will fold without their involvement, the focus should instead be on protecting the family.
“In such scenarios, income protection would be another choice, offering protection levels tailored to the client’s budget, including low-cost options where the claim is paid for a maximum of two years.”