SME: How to cover your business against the unforeseen

The thing with running your own business is that there is always something to be doing, be it getting things off the ground, focusing on new clients or managing staff.

SME: How to cover your business against the unforeseen

However there is an area integral to any business that can be overlooked because it is not necessarily at the forefront of a director’s mind. And that is business protection.

When someone is employed in a large business it is not uncommon for their employer to provide them with benefits in addition to their annual salary. These can include a pension, sick pay and a financial pay out for their family in the event of an employee prematurely passing away.

A large business is also generally covered if the employee can’t do their job for whatever reason as they have the resources and staff to take over if needs be.

Unfortunately owners of small businesses don’t necessarily have those resources and as they are their own employer no one else is going to step in or assist if something goes wrong.

Unless they do something about it themselves.

Business protection comes in a number of forms that are all designed to protect different parts of a successful business and here I will discuss a few of them.

Key Person Insurance

This is designed to help the business protect against loss of profit in the event of the death or critical illness of a key employee. The loss of someone who performs a key role within a business can leave a huge void if they are not there. It could, for example, cripple the sales figures that a business needs to survive so it is of paramount importance that the business has the means to replace that lost profit.

Shareholder Protection

This is designed to enable a co-director to buy out a business partner’s shares in the event of their premature death. This is also hugely important as it allows the surviving director(s) to maintain control of the business that they have worked so hard to develop. Cross option agreements mean that this can happen without having to refer to third parties that have inherited a share of the business who are instead automatically bought out.

Relevant Life Insurance

This is designed to act as a death in service scheme for small businesses who do not have enough employees to qualify them for a group scheme. The beneficiaries are the employee’s next of kin but unlike a personal policy the premiums are paid by the business meaning that there are significant tax savings for the individual and potentially the business. This means that relevant life policies can be extremely competitive when compared to a personal policy.

This is not by any means an exhaustive list but it highlights some areas of significant risk to a small business that if not addressed could have some disastrous effects.

Life running a business can move pretty fast, and if you don’t stop once in a while to take a look at protecting the important people in it, then things might not pan out how you thought they would

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Categories: Analysis, Shares, Viewpoint
Tags: ARM Holdings

About Author

Ed Sayers

Ed Sayers is an independent financial planner and founder of Bright Cube Money