Plan Business

Financial protection is essential for any business. It ensures that profitability and long-term viability is not affected if an important person within the company suffers serious ill health.

Key person cover

A key person is someone whose death, serious illness or disability would have a serious effect on the short-term & future profits of the business.

They will typically be:

• an ‘ideas person’ on whose innovation the company depends
• a ‘contacts’ or ‘face of the company’ person
• a key ‘salesperson’ without whose contribution the profitability would suffer
• a business owner who ‘is the business’

Considerations in the event of any of the above scenarios:

• how would profitability be affected?
• would recruitment or training costs be incurred?
• if the key person is a business owner, would staff fear for their job or leave?
• could valued customers be lost?
• could the brand be damaged?
• would suppliers require payment in advance?
• could the bank call in overdraft or refuse future financial assistance?
• could this lead to the winding up of company?

Share protection

When a shareholder dies, the deceased’s share of the business will normally form part of their estate to be inherited by their beneficiaries.

Considerations in the event of the above scenario:

Who will inherit /own the shares

• what will they do with them?
• do they really want them?
• will they try to sell them?

Who will control the company?

• do they have the appropriate experience?
• can they draw a salary?
• will the surviving shareholders want them as a director?
• what happens if a sale of the shares is needed?
• who will be able to buy them?
• who can afford to buy them?

The problems for shareholders are similar for partners should a member of the partnership die. Similarly; if a shareholder or partner suffers a serious illness and then wishes to retire from the business or be unable to return to work.

In the event of death, the shares may be inherited by a spouse or beneficiary whose presence is neither welcome nor of any real value. They could have trouble selling the shares or could sell them to a competitor. It is more likely that they have no desire to control or own shares in the company; more likely they would prefer the financial equivalent.

Legal documentation would be required in the form of a cross-option agreement. This gives the remaining shareholders / partners the right to buy the shares, therefore ensuring limited effect on the business.

Shareholder / partnership capital account protection

As with share protection, when a partner dies, the deceased’s capital account will normally form part of their estate to be inherited by their beneficiaries. The estate or beneficiary can demand immediate payment.

The problem for the business is that it may not have sufficient capital to meet this requirement. After all, capital accounts are normally created because of financial entitlements that remain ‘invested’ in the business due to cash flow or capital limitations.

Commercial lending

The purpose of commercial mortgage-linked life or critical illness cover is similar to that of key person cover. It is to avoid financial hardship to the business if a business owner / key person were to die or be diagnosed with a specified critical illness, burdening the business with outstanding debt whilst facing such a major trauma.

Retirement planning is required for when a business owner / partner wishes to retire from the business because they are likely to want to ‘cash in’ their share of the business. The situation could be difficult if the retiring partner requires the cash sum and the remaining partners are not able to buy out his share.

Commercial lending requires a completely different approach to personal lending and your adviser will need a different level of knowledge to one who can assist with domestic lending. We can help you with:

• Project managing the financing arrangement including assistance in drafting the proposition
• Access to all commercial lenders both on and off the high street

We have key relationships with the commercial lenders and this can considerably improve the service you receive from them and the relationship you have with them.

Please note: Not all forms of commercial lending is regulated by the Financial Services Authority