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Will your Business Survive?

Written by Bedfordshire Chamber of Commerce | 01 Aug 2024

When I meet business owners, I love hearing how they’ve built their business up and what their plans are for the future. One of the questions I always ask them is have they future proofed their business at which point many of them look at me quite quizzically.Pretty much all of them will understand the need to insure and protect the assets of the business - they will typically have cover for things like the premises, vehicles, their IT, possibly their stock etc., but the one thing very few business owners ever bother to do is protect themselves - their most valuable and irreplaceable asset. 

It is a fact that most small businesses are heavily or totally reliant upon the business owners themselves without whom there may be no business, they are the ones who drive the business, bring in new customers, are responsible for the sales, but if one of those were suddenly unable to come to work, how would that business fare, would the business survive? How would the customers, the banks and other creditors react and what about the business owners family? In many instances, their family life is intricately inter-woven with the life of the business owner and so without the business owner bringing in the money, how long would it be before the mortgage on the family home cannot be paid, or other bills can’t be paid, and let’s not forget there may be personal guarantees secured upon the family home as well. I’ve seen more than one perfectly viable business fold simply because one of the business owners passed away suddenly or had a serious illness. Very quickly, customers and suppliers start to move away, and banks and other lenders start to ask questions about how they will get their money back.

All of this could be easily avoided by setting up a simple cover that will inject money into the business should the need arise. We must also spare a thought for the family of the business owner who has sadly passed away or suffered a serious and life-threatening illness - what happens to their share of the business? Typically, they will pass to their spouse under the terms of their Will, which then means that the surviving business owners have the spouse of their deceased co-Director or partner as a major stakeholder in the business which may not be desirable from either side. 

Often the widow or widower of the deceased will simply want their value of the business share paid to them as cash and the surviving director/partner can have the shares, however there may not be enough money in the business to make this happen. Again a simple solution with a legal document in the middle can make sure this situation never arises - a cash sum is released which enables the surviving business owner/partner to buy the shares of the deceased spouse and the spouse then passes the shares over in exchange for a cash sum, the result being of course that the survivor now owns the business entirely and the spouse of the deceased walks away with the cash. All of this can be set up simply and quickly and can ensure that the business survives, and that the family of the deceased are suitably remunerated for their loss. 

There are additional considerations if one of the business owners doesn’t pass away but instead suffers a life-threatening illness. In these situations, the discussions can be even more intense as there are additional considerations - for instance the person who has become ill may not want to return to work. Similarly, the remaining business owners may not want them back. These are all discussions that need to be had and once again a simple financial solution can ensure that this situation does not arise. A simple legal agreement gives either party the option to exercise the arrangement the business would have the funds in their hands to do so, and the person who is ill has the shares. An exchange takes place and both sides get what they want.

Business assurance is vital to ensure the longevity of any business but very few small businesses have any business assurance in place. 

Why is this? 

One of the biggest fears is cost. Although this is often an unfounded fear with the alternative being the entire loss of the business and possibly the family home. Another fear is that they may discover they have something wrong with them already and they would rather not know, but perhaps the biggest reason for not doing this is this belief amongst business owners but they are immortal (‘It won’t happen to me’). Yet every one of us knows someone who has died before their time or has suffered a serious illness such as cancer heart attack or stroke before retirement age and yet they still choose not to take any action. Don’t be one of them!

Jon Ingarfill, Chartered Financial Planner, 
Jon Ingarfill Financial Planning, a St. James’s Place Partner Practice.

Connect with me here

 

Topics: St James's Place, Jon Ingarfill

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