A short guide to business protection
This content is for information purposes only and should not be taken as financial advice. Every effort has been made to ensure the information is correct and up-to-date at the time of writing. For personalised and regulated advice regarding your situation, please consult an independent financial adviser here at Castlegate in Grantham, Lincolnshire or other local offices.
Imagine a ship which sails to sea. If the captain does not check the anchor, navigation, communication equipment and safety appliances (e.g. life vests), would it not be foolish to leave the port?
When it comes to business protection, some owners and directors can overlook vital steps that need to be taken before “embarking” to market. In this guide, our Grantham financial planners offer some ideas to help businesses strengthen financial stability for the 2023-24 financial year.
We hope this content is helpful. If you want to discuss your financial plan with us, please get in touch to arrange a no-obligation financial consultation, at our expense:
01476 855 585
info@casfin.co.uk
What is business protection?
Broadly speaking, business protection refers to a range of insurance or financial products which help to safeguard your business in case things go wrong. It serves to protect cashflow in the event of unforeseen events, such as the death of a key salesperson or director.
If COVID-19 taught us anything, it is that unexpected scenarios can derail even the best of business plans. By planning ahead, you can mitigate your risk and minimise disruption to your operations and growth potential.
Key Person Protection
One of the most vital types of business protection to consider – irrespective of whether you are a sole trader, joint partnership or limited company – is key person protection. This helps to cover your business if a “key person” dies or is critically ill or injured.
This could be a director, a major salesperson or another crucial employee. When the policy’s terms are met, it pays out a lump sum to your business to help you manage the process of finding a replacement person, covering debts or replacing lost revenue.
For a small business, defining your “key” people may be fairly straightforward. In a larger one, however, it may be less clear. You may need different amounts of cover for different people, too. Consider speaking with a financial planner to explore the best options for meeting your key person protection needs.
Business Loan Protection
Many businesses have outstanding debts to pay. What would happen if the key person responsible for the loan, or guarantee, suddenly died or was diagnosed with a terminal illness?
Business loan protection exists for this type of scenario. Similar to a life insurance policy which covers a person’s outstanding mortgage, business loan protection should reflect how much left that your business owes in debt.
It can be very serious if a business finds itself unable to repay its loans. Give yourself and your key stakeholders some peace of mind by speaking with a financial adviser.
Shareholder Protection Insurance
For company directors, a crucial question to ask is what happens if another major shareholder dies suddenly. What happens to their share and how could it impact your business?
Under UK law, business shares would typically be regarded as part of the deceased individual’s “estate”. These would then pass down to their beneficiaries during the process of administering and distributing the estate.
This means that part of your company’s ownership could fall into the hands of family members who have little interest – or experience – in your business. Yet, without a legal agreement in place beforehand, they would have no obligation to sell their shares to you.
Shareholder Protection Insurance is designed to provide a way forward in this kind of scenario. It obliges the beneficiaries to sell the shares back to the business, and it provides the funds for the latter to purchase them.
Conclusion & invitation
If you are interested in discussing your own financial plan or investment strategy with us, please get in touch to arrange a no-commitment financial consultation at our expense:
01476 855 585
info@casfin.co.uk
