Business Protection Risks – 3 risk areas that every business should consider

Risk 1: Key Person Cover

• Who generates your capital?
• In what proportions?
• Should you lose one of these individuals due to death or ill health, how long could you continue to trade?

Research highlights that 53% of business would cease trading within the first year following such events*.

Idea: Should business owners insist that their suppliers / debtors have adequate protection to ensure that a loss of a key person does not negatively impacts upon their ability to supply or pay.

Risk 2: Loan Protection

• How much of your personal capital have you invested or loaned to the business?
• Have your co-business owners contributed in the same way?
• Outstanding loans (including director / partner loan accounts) must be repaid on death.
• Do you have access to sufficient funds to address this risk without it having a detrimental effect on the business and your ability to trade?

Idea: Should all loans be protected in the event of death to a business owner?

Risk 3: Shareholder / Partnership Protection

• It is common for SME’s to plough profits back into the business in order to fund business growth. Is this true of your business?
• With your capital tied up (reinvested) would you have access to sufficient funds to buy your co business owners share of the business should they pass away or become incapacitated due to ill health?
• Is your bank likely to loan you the capital required to fund the share purchase?
• If not, you risk losing control of your business?

Idea: Should there be provisions in place to buy out a shareholder in the event of death or incapacity?

Source – *State of the nation’s SMEs report, 2015 and Vitality website http://www.legalandgeneral.com/advisercentre/campaigns/business-protection/state-of-sme.html