3 minute read
Plan for the future by making a company will
Most of us know that it’s vitally important to put in place a will to ensure that our assets are distributed to our heirs on our death, in accordance with our wishes.
But as a business owner, have you considered what would happen to your business if you or one of your key colleagues was to pass away suddenly?
A critical part of your planning and decision making should be centred around managing risk for the future, which includes thinking about what should happen to your business interests following your death, or the death of someone else who is crucial to the business. Putting a company will in place is a fundamental pillar for a sustainable business.
What is a company will?
There are two main elements to putting the right financial protection in place for your business. The first is the company will, which is key person insurance (also commonly known as keyman insurance), and is essentially a life insurance policy taken out by a business to insure its most valuable employees. The policy is designed to protect the company from the financial impact of losing essential people through death or illness. It’s about managing risk and addressing the ‘what if’ factor that none of us wants to contemplate.
As a business expands it’s often the case that one or two members of staff become almost indispensable in terms of their ‘know how’ or specialist expertise. These people can be difficult to replace, so key person insurance can provide the business with a cash injection at a critical time to help manage the disruption, or assist with recruiting a replacement.
Shareholder protection
The other element is shareholder protection, which is used as a planning tool to ensure that the right money ends up in the right hands at the right time.
Typically we would work in parallel with the lawyers putting together the shareholder agreement, to ensure that
the remaining directors can carry on with the business, while putting money (the policy proceeds) into the hands of the deceased’s family. This solution often works for both parties, as the family may not want to carry on their involvement with the business, or lack the relevant experience.
In the food and drink sector a lot of start-ups begin with two or three friends, colleagues or family members setting up their venture together, and then trying to get established. Longterm planning is often the last thing on their minds; but if a key person dies unexpectedly it can be catastrophic, particularly in those early years. An insurance policy can provide peace of mind so that, if the worst does happen, the business has a chance of survival.
This kind of planning often gets put on the backburner, and in many cases business owners don’t tend to talk about this stuff very often. Unfortunately, if they do put something in place, they often fail to review it,
which means that as the business expands, the levels of protection are inadequate and haven’t kept pace with the growth.
At Old Mill we regularly review the policy in place and the amount of cover, to ensure both are still fit for purpose. As business advisers our job is to check:
• When the policy was last updated?
• Whether it reflects your current wishes?
• Have there been any changes?
We’ve previously come across scenarios where the names of the people referred to in a shareholder document were no longer relevant, as they have left the business and new key staff have joined, so reviews are an essential part of the process.
If a key individual dies suddenly, having a company will in place can make a huge difference and the business doesn’t have to fail as a result. Life assurance can provide business owners with certainty and peace of mind, but policies need to be properly planned and reviewed regularly to ensure they reflect the continuing needs of the business.
David Rice
