Protection is key to continued business success
With the latest figures from the Office for National Statistics revealing a slight 0.1% growth in the UK economy (in the last three months of 2009)* it continues to bring the issue of business protection sharply into focus.
Sole traders, family run businesses and SMEs can’t afford to not look at the issue of business protection especially in the current climate and family run wealth management firm Xentum is no exception.
Dominic Baldwin who set up Xentum five years ago with his wife Kate says; “From the minute we took on our first client, business protection was key to our succession planning. Especially in the financial planning sector clients want continuity and security as it gives them protection. If the linchpin of the business dies suddenly or is hit for six with a serious illness what would happen?” It’s a sobering thought but one that has to be addressed.”
Companies readily take out insurance on their physical assets such as business premises, machinery, computer equipment and vehicles. However, those at the helm of the business often overlook that a significant, if not the most important factor in the success of the enterprise is in its employees. Most organisations will know which employees are vital to its success so should consider the financial impact if one of these key people were to die or become critically ill.
Due to the nature of Dominic’s business it’s a case of ‘practice what you preach.’ He says: “It would be pretty hypocritical of me to advise clients on the right course of action and not have my own house in order. Anecdotally, I would say very few have business protection in place and I can’t stress enough how important it is to set in place. The repercussions for your family, employees and contractors could be devastating. Providing you deal with specialist advisors it’s a relatively simple process and of course you can review and amend it as time goes on.”
* Source: BBC news online 26.1.10
Real life case study
Current situation
Jack Hobbs * is the managing director and key employee of a successful sports club. As a key person his death or disability due to ill health would have a serious impact on the company’s future profits. A business can have one or more employees who make a vital contribution to its profitability. The size of an individual’s shareholding won’t necessarily indicate who that key person is. Jack’s employer has requested that he seeks advice on cover payable to the company in the event of his death.
Recommendations
Jack didn’t require critical illness or income protection benefit, however he requested a five year renewable key person life policy which would pay £2 million to his employer on his death or if developed a terminal illness. His business can decide how to use the proceeds, which could include employing a permanent replacement or a temporary individual if say Jack was to return to work at some point despite being critically ill. It could also be used to repay a company loan.
* Name has been changed to remain confidential
