4 vital ways every business owner can protect themselves against the unthinkable

In the past few years, business owners have faced their fair share of trials and tribulations. Covid-19, coupled with the cost of living crisis that came afterwards, might have caused you to question your business’s longevity more than once.

Nevertheless, as we hopefully head into smoother waters, these challenges have likely taught you many lessons along the way – including that anticipating unthinkable events, and protecting your business against them, could make all the difference.

As a business owner, working with a Financial Planner who understands your needs can help you feel more confident about your company’s security. Despite this, as of 2021, only 40% of businesses sought financial advice, according to the Legal & General ‘State of the Nation’ report.

If you’re unsure about how well your business would cope with an event that might knock it off course in the coming years, read on to learn four vital ways you can protect it.

1. Create a strong succession plan

According to the Legal & General research, 52% of participants said that the death of an owner poses the number one risk to the future of their business.

Indeed, while enjoying your career as a business owner and staying on top of its day to day happenings, you could have left your succession plans on the back burner. But if you were to die unexpectedly, ask yourself: “will my colleagues and my family know what to do?”

If you’ve not yet made succession plans, consider:

• What you want to happen to your company when you pass away. Knowing whether you’d like to sell your business or pass it down to the next generation is crucial – it means that, if you pass away before you expect to, your beneficiaries can be more prepared.
• Whether you’ve prepared your beneficiaries to honour your intentions. If you plan for a family member to inherit the company, ensure you discuss this with them sooner rather than later. If you wish for a sale to take place, it could be prudent to prepare your beneficiaries for this process, and to nominate a person within the business to lead the way forward.
• How your business will cope financially with this shift. Without key protection elements in place, it could be difficult for your company to adapt to new ownership.

Discussing business succession planning with a Financial Planner can help you prepare.

2. Protect your business from the loss of a key person

According to the Legal & General report, 94% of business owners recognise that they have at least one “key person” in their company.

A key person could be:

• You
• A member of your family if they work in your business too
• Another person in senior management
• Anyone else whose presence is vital to the running of your company.

If a key person died or became critically ill, there could be significant financial ramifications for your business. Their sudden absence might mean your company experiences:

• Losing clients
• A downturn in profits due to delayed work
• Grief or stress within the remaining team having an influence on workflow.

If you’re concerned about how the loss of an important figure could affect your business, key person cover can make all the difference to your peace of mind.

As a form of life insurance, which can also include critical illness cover if you choose, key person insurance may pay a lump sum to your business when a person named in the policy dies or becomes ill.

This lump sum payment could be used to cover any shortfall your company experiences in the unexpected absence of a key person.

This type of cover varies widely, so talking to a Financial Planner before you take it out could mean you find the appropriate insurance for your business’s needs.

3. Identify vulnerabilities and address them

All businesses have vulnerabilities – and contrary to popular belief, identifying yours could make your company stronger, not weaker.

Here are two key vulnerabilities many businesses have, and how to protect against them.

Company debt

Most businesses have some level of debt – this is not a sign of failure, but rather of investment in your company’s future.

However, if something were to happen that meant you couldn’t pay your debt, such as your death or serious illness, your company could go bust.

Before you begin to worry, you may be relieved to learn that taking out business loan insurance could help protect your company from these events.

If you were to pass away or become too ill to run your business – leaving you unable to repay your debt – business loan cover can pay a lump sum to help cover these expenses.

There are several types of business loan insurance. If you’re unsure which step to take next, contact a Financial Planner for guidance on your options.

Unexpected costs

Many businesses are experiencing a surge in costs at the moment. Unfortunately, this has led some business owners to question the future viability of their company – especially if unexpected expenditure arises.

Alongside the protection options you’ve read about already, it may be helpful to keep building your emergency fund. Having a buffer of savings means your business can cover emergency costs that arise.

Consulting a professional Financial Planner can help you stay on track with your company’s strategy and secure your business for the future.

4. Pay attention to your personal wealth alongside your corporate finances

As we discussed in a recent blog for business owners, paying attention to your personal wealth alongside your corporate finances is essential.

When you lose track of one in favour of the other, you could be missing out on seeing the big picture.

This is especially vital if you are approaching retirement. Asking yourself important questions, such as “have I saved enough to fund my retirement without business profits?” and “could I live comfortably in retirement after I’ve sold my business?” is crucial.

Here at PenLife, we can help you step back and see the big picture.

• Review your personal and corporate financial situation
• Prioritise building your emergency fund
• Build a bespoke package of business protection to suit your needs
• Work through any challenges that arise over the coming years.

Together, we can take steps towards shielding your business from the unexpected.

Get in touch

To discuss building a robust financial plan for your business, personal finances, or both, email us at enquiries@pen-life.co.uk, or call 01904 661140.

Please note

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Note that financial protection plans typically have no cash in value at any time and cover will cease at the end of the term. If premiums stop, then cover will lapse. Cover is subject to terms and conditions and may have exclusions.

All information is correct at the time of writing and is subject to change in the future.