Most astute business owners insure physical assets from destruction
Whether you’ve been in charge of a successful business for several years or have only recently started up your own enterprise, running a business will create financial challenges. Some businesses are dependent on a few people who play a fundamental role within the business, but little consideration is given to what might happen if such an individual was lost to the business, either through death or critical illness.
How much is a key employee worth to your business? And how would, or could, you cope without them? Financial protection of key staff is vital to allow your business to recover quickly and minimise the impact should the worst happen.
Key employees are vital to a business
Business protection helps to protect a business should a director, partner, member or key employee suffer a critical illness, become unable to work due to a disability or die. It helps to make things right when things go wrong.
There are several different types of business structure in the UK, all governed by different rules which determine the legal status of the business and how it is run, for example, the amount of tax you pay, who is entitled to the profits and who is liable for any debts run up by the business.
Type of business and its particular needs
Business protection is available for partnerships (including limited liability partnerships), shareholders, sole traders and key employees. It can also be used to ensure repayment of a business loan in the event of death or critical illness of a partner, key person or sole trader. How the arrangement is set up will depend on the type of business and its particular needs.
The loss of one or more of your key employees can cause disastrous problems. Sales may be lost. Credit can become more difficult to obtain. Profits may shrink. Momentum may be lost. And, hiring and training a replacement will cost you time and money. Most astute business owners insure physical assets from destruction.
Key areas you need to consider
But when it comes to a business owner’s most valuable assets – key employees – some forget to take the same precautions. Whatever type of operation you run, if successful it will grow and evolve over the years. If you’re just setting up your first business, the challenges you face may be very different to those you may encounter ten or twenty years down the line.
At Rock Wealth we are experts at protecting businesses, and we are here to help at every step of the way. To help you understand more about these risks, we’ve provided information about the key areas you need to consider.
Key person insurance
This is designed to compensate a business for the financial loss brought about by the death or critical illness of a key employee, such as a company director or other integral member of staff. It can provide a valuable cash injection to the business to aid a potential loss of turnover and provide funds to replace the key person.
Without the right cover in place, you could also risk losing your business. Key person insurance can be utilised in a number of different ways – for example, to repay any loans taken out by the key person; to help recruit and fund the training costs for replacement staff; to meet the ongoing expenses while the level of sales recover; or to facilitate payments for outside consultants or expert advice that may be required. Whatever the key person does, their loss could have disastrous consequences.
Some of the problems your business could face are:
- Loss of profits
- The need to recruit or train a replacement
- Loss of important personal or business contacts
- Difficulties in meeting existing loan repayments
- Loss of confidence from suppliers and customers
- Difficulties in raising new finance for new developments
- Loss of detailed knowledge of the business’ processes and systems
- Having to repay a loan the key person has made to the business
- Loss of goodwill
Is your business prepared for the unexpected?
No matter how successful your business is, its future may depend on how well you’ve prepared for the unexpected. You cannot replace the loss of a key person, but you can protect against the financial burden such an event may cause. We understand that business owners and entrepreneurs can be under constant pressure to run and build their businesses, so finding the time to learn how to deal with financial planning aspects can be very difficult. To find out more contact RockWealth on 01926 969010 or via email corporate@rockwealth.co.uk.