How well-protected is your business?

Wednesday, 08 July 2015

How good is your backup plan?

insurance consultancy

 

Really?

 

If you’re like many business owners you have already ensured the physical assets of your business from theft, fire and damage. But have you considered the importance of insuring yourself – and other key people in your industry – against the possibility of death, disability and illness. Not being adequately protected can be a precarious oversight, as the long term absence or loss of a key person can have a dramatic impact on your business and your financial interests in it.

 Protecting your assets

  The business knowledge (known as intellectual capital) provided by you or other key people, is a major profit generator for your business. Material things can always replace or repaired, but a key person’s death or disablement can result in a financial loss more disastrous than loss or damage of physical assets.

  If your key people are not adequately insured, your business may be forced to sell assets to maintain cash flow – particularly if creditors press for payment or debtors hold back payment. Similarly, customers and suppliers may not feel confident in the trading capacity of the business, and its credit rating could fall if lenders are not prepared to extend credit. Also, outstanding loans owed by the business to the key person may also be called up for immediate repayment to help them, or their family, through their situation. 

Asset protection can provide the business with enough cash to preserve its asset base so it can repay debts, free up cash flow and maintain its credit standing if a business owner or loan guarantor dies or becomes disabled. It can also release personal guarantees secured by the business owner’s assets (such as the family home).

Protecting your business revenue

  A drop in revenue is often inevitable when a key person is no longer there. Losses may also result:

• from demand that can’t be met

• while you’re finding and training a suitable replacement

• from errors of judgment that can happen due to a less experienced replacement, and

• through the reduced morale of employees.

Revenue protection can provide your business with enough money to compensate for the loss of revenue and costs of replacing a key employee or business owner should they die or become disabled.

Protecting your share in the business

 The death of a business owner can result in the demise of an otherwise successful business simply because of a lack of business succession planning. While business owners are alive, they may negotiate a buy-out amongst themselves, for example on an owner’s retirement. But what if one of them dies?

The remaining owners must now negotiate with the deceased owner’s legal representative, who may be more concerned about the needs of the estate than the needs of your business. Many business owners mistakenly believe that this contingency has catered for in the business’ constitutional documentation or business owners’ agreement. But often there is no buy-out provision, or if there is, it may be ineffectually drawn up and inadequately funded.

Ownership protection can provide sufficient cash to facilitate the transfer of the outgoing owner’s equity to the continuing holders in the event of a business owner dying, becoming disabled, or suffering a critical illness resulting in the friendly owner leaving the business.

Considerations

The right type of business protection to cover you, your family and business associates is dependent upon your current situation. A financial adviser can help you with many issues you may need to address when it comes to protecting your business. Such as:

• working with your business accountant to determine the value of your businessinsurance33

• reviewing your personal insurance needs to ensure you we're suitably covered with potential tax effective and convenient ways to package and pay premiums and review any of your existing insurance

• facilitating, with legal advice from your solicitor, any changes that may need to be made to your estate planning and ensure your insurances are adequately reflected in your legal documentation.

A financial planner at CommonCents Financial Planning can provide or facilitate advice regarding all these and other issues you may encounter. They can also work with other professionals to ensure all areas were cover in an integrated and seamless manner. To find out more about the information in this article speak with your financial planner or contact us if you don’t already have one.

About The Author

Nick Girle

Nick Girle

Senior Financial Planner & Director

 

Nick Girle is a leading expert in personal finance who has been providing families with financial advice for 20 years.

He works with the types of families that aspire to use their financial and intellectual resources and are willing to put in the effort to rid themselves of all of their money worries.

Since embarking upon his Financial Planning journey Nick Girle has brought comfort, security and peace of mind to thousands of client’s financial lives through a process that ensures complete understanding of a family’s financial hopes and dreams.

He became involved in the Financial Services industry initially with the Suncorp group before taking on a Senior Planning role with NAB Financial Planning and then established Common Cents Wealth in 2011 to better help him spend more time focussing on what’s important – a client’s ultimate financial success.

Together with business partner Richard Brannelly he runs CommonCents Financial Planning.

Email or call 1300 376781 today for an appointment and CommonCents Financial Planning will give you the answers you need to worry less about money and achieve the lifestyle you’ve always dreamed of.

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