Business Protection
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Buy/Sell Protection
Should a privately-held business establish a comprehensive buy/sell agreement to ensure the transfer of a business interest upon death, all problems are not solved. Where do the remaining owners get the money to buy out the deceased's family interest at fair value and in a timely manner? There are a number of choices: 1) Invite new partner to purchase shares - this may not be possible within a fair timescale. 2) Agree to repay over time - This may not be acceptable to the deceased's estate as they would be relying on the continued success of the business. 3) Realise assets - this may have to be done at a 'forced sale' value. Not desirable. 4) Borrow - this method may not even be possible as banks would be wary to lend and, even if successful, would certainly put pressure on the business and the remaining owners. 5) Create a cash reserve now - This would take time and would mean locking away critical working capital otherwise available to the business Although the above funding mechanisms are available, the most successful method is to fund the share purchase using insurance within a business protection insurance strategy, generally a combination of: - Life Insurance, and - Total & Permanent Disablement (TPD) Insurance Business Protection Insurance can provide a unique and cost-effective solution to the buy/sell agreement funding problem. What makes it unique is that a third party (insurance company) will provide the required share purchase funding in the event of an owner's death or permanent disability. This method is cost effective because it can provide that purchase value at only a fraction of the cost of the alternatives above. Once you have decided to consider a share protection strategy for your business we will, in collaboration with your lawyer and accountant, prepare formal advice to confirm all the key aspects, including: Types of Cover, Level of Cover, most appropriate Insurance Provider, Tax Implications, Ownership Issues and of course, Cost. |
KeyPerson Protection
KeyPerson protection is a crucial element of Business Succession and Continuation. As discussed, a buy/sell agreement ensures the security for the owners of the business. Key person protection, however, ensures that the business itself remains healthy when a Principal or person integral to the business (a 'key person') suffers a tragic event. The loss of certain 'key people' in any business can have a significant negative financial effect on that business. These are the people who provide the ideas, drive, initiative and skills that generate the profits needed for the survival and growth of the business. Key people are not limited to the owners of that business, but may also include: - Managing directors - Working directors - Technical specialists & experts - Key sales people - Qualified or accredited individuals that secure contracts and licences, who would be difficult to replace quickly. The sudden loss of these people could mean a loss of key clients, reduction in sales income, additional costs to recruit and reduced goodwill. The function of KeyPerson protection is to help reduce or counteract those financial & operational impacts by providing funding to the business at the agreed level.. A KeyPerson protection strategy will usually contain a combination of the following covers: - Life Insurance, and - Total & Permanent Disablement (TPD) Insurance - Income Protection - Trauma cover Purpose of the cover could be: - the replacement of business income or loss of profits - the full or partial repayment of debt to banks and other creditors. - to help discharge security held over a guarantor's property. - to offset a reduction in the value of goodwill in the business. - to cover the recruitment costs incurred in replacing the key person. Identifying the key people in a business may be a simple task but assessing the real financial impact generally requires professional experience and Delivering Certainty can assist you with the creation of your business' KeyPerson strategy and, once agreed, its implementation. |
Business Expenses Protection
Business expenses insurance is similar to income protection insurance , but it’s designed specifically for business owners.
As the name suggests, business expenses pays a monthly benefit – generally for a maximum of 12 months – to cover business costs if you (as a business owner) suffer an illness or injury and are unable to work.
Business expenses insurance should not be confused with business interruption insurance, which pays out on external events, such as fire or water damage.
How much is enough? The right amount of business expenses insurance depends on a range of factors. For example, to what extent would the business owner’s absence affect their ability to meet expenses? And what are their specific ongoing expenses?
Some expenses to consider include:
Business expenses premiums are usually tax deductible, and can be packaged with income protection insurance to make sure both your personal income and work expenses are covered.
Business expenses insurance is similar to income protection insurance , but it’s designed specifically for business owners.
As the name suggests, business expenses pays a monthly benefit – generally for a maximum of 12 months – to cover business costs if you (as a business owner) suffer an illness or injury and are unable to work.
Business expenses insurance should not be confused with business interruption insurance, which pays out on external events, such as fire or water damage.
How much is enough? The right amount of business expenses insurance depends on a range of factors. For example, to what extent would the business owner’s absence affect their ability to meet expenses? And what are their specific ongoing expenses?
Some expenses to consider include:
- Staff salaries (non income-producing roles)
- Rent on your place of business
- Phone, gas and electricity
- Leasing expenses for equipment and vehicles
- Repairs and maintenance.
Business expenses premiums are usually tax deductible, and can be packaged with income protection insurance to make sure both your personal income and work expenses are covered.