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Is your most important business asset adequately insured?
There are many issues to consider when starting a business. Having put together a business plan, as directors and owners consideration needs to be given as to the legal status of the company, the trading year end and the list goes on and on.
One consideration that is often overlooked is adequately insuring the key people that the business will rely upon in order to bring that theoretical business plan into life. Businesses don’t think twice about the need to ensure their buildings, machinery, cars etc, but when it comes to ensuring the most important asset the business has i.e. its people, this will typically be neglected.
Over 90% of businesses in the UK employ less than ten people and these are exactly the types of organisations that are most at risk by the loss of a key person due to long term illness or death.
Key person insurance can provide funds to help with the following:
• Provide an income to the business whilst the key person is away from the business or help train or recruit a replacement
• Inject cash into the business to help protect profits that may otherwise seriously diminish
• Repay any outstanding loans or overdrafts to the bank
In addition to protecting key people within the business, any company should also consider how it protects its shareholders or partners in the event of long term illness or death. In this scenario the death of a shareholder will alter the balance of power within a business and can create financial difficulties for the surviving shareholders, partners or dependants.
Again these issues should be addressed at the formation of the business. Consideration should be given to putting an agreement in place which would mean that in the event of death or illness of a director/shareholder, funds are put in place to allow dependants to receive their share of the business, whilst at the same time protecting the remaining shareholders from receiving unwanted members on the board or potentially disruptive shareholders running the company.
These issues can be easily addressed by working closely with your accountant, solicitor and financial adviser, and in many instances provide peace of mind for little cost.
