The need for business succession planning

July 21, 2011

During a meeting with a business owner this week, I had the tables turned on me when she started a discussion about the relative merits of business protection plans.

Apart from fact that this is something I should have been doing, it did highlight that this business owner was thinking about the risks (dare I say it again, because of the current economic climate) to her personal circumstances if something was to happen to her fellow Director.

She did also allow me to regain control of the discussion as the understanding of the difference between Key Person Cover and Director’s Share Protection (and how they can overlap) wasn’t fully clear to her.

When you compare the statistics of the number of US businesses that have protection in place for their Key People and Directors to the UK, it shows the enormous financial risk many British business owners are prepared to take by not putting the proper arrangements in place.

A few throw away lines to highlight some of the issues:

“would you be happy if your biggest rival in business was able to buy into your firm because you hadn’t made sure your fellow Director’s shares were subject to the proper agreements in the event of death?”

“…if the most important fee earner in your business was diagnosed with cancer, would your bank be sympathetic to your request for increased overdraft facilities?”

There are a number of questions that owners of businesses should be asking themselves to highlight the potential need for some type of Business Protection cover.

I have set out a list of the major ones I think you must consider now in Key Questions for Business Protection.

If you need to discuss the implications of your answers to these questions and need professional guidance as to how to set the correct type of Business Protection arrangements for your firm up, please give me a call.

Roland Oliver

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The fundamental need for protection

June 7, 2011

Reading an article in the paper the other day reminded me that one of the most basic functions of my job is in ensuring that clients are adequately protected with life and critical illness cover. This is arguably the most important but often the least appreciated part of my work.

We all have stories of untimely death or serious illness and how families been devastated but have survived because of having financial protection in place.

I’m not going to go into all the details of what plan, who with or what type of cover at this stage but I am going to point out some areas that must be addressed.

I will not be alone in noting that clients have a reluctance to paying for something “they may not need” and tend to try and talk the cost of life and critical illness cover down to a budget.

We use Voyant cash flow modelling to determine the actual financial cost of someone dying early or suffering a critical illness which tends to bring some serious reality to the levels of cover needed.

Often clients will have some protection in place (flogged by a bank in many instances) which the level of cover bears no resemblance to the actual level of risk. There are a lot of fans of nice round numbers out there and clients are usually at a loss as to why a particular level of cover has been arrived at.

Establishing with clients the real cost of early death or serious illness by more rigorous methodology is paramount and the costs of providing this cover are then seen in the right context.

I find that people do understand the need for cover and are much happier to have the right level of protection in place once they see the real amount of money required to make sure their family will be financially protected if the unthinkable happens.

Once we have the right numbers established, then using the appropriate trusts to ensure swift dispatch of any monies in the event of claim should be a given.The option of using Relevant Life policies were possible also adds a very welcome 20% corporation tax saving on premiums.

So to summarise, don’t leave it to chance; make sure the amount of cover is relevant to the level of risk and get the proper amount and type of cover you need.

If you need us to give you a more accurate figure as to how much cover you might need, contact Malcolm Stewart our Voyant guru on 0131 273 5202 and he’d be happy to help out.

Roland Oliver

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