Finance Matters Article – Thursday 17th March

3 Tips to Secure your SME Business

People are at the heart of every business in Ireland. Most business owners protect and insure their premises, the company vehicles and the machinery and equipment. Yet, most business owners have not considered what would happen to the business and their family if the owner or key person passed away suddenly? Business protection is an effective solution that can ensure there is a capital lump sum available to buy the deceased business partner’s share and / or help offset the financial impact of a key employee’s death. Having the means to buy a deceased partner’s share allows the remaining partners to retain full control of running of the business.

According to a survey by Royal London Assurance “People will put other forms of financial protection in place for their business such as insuring their premises, machinery or even its debt. However, they don’t always protect what is the greatest asset any business has, namely the people who work in it. Given the 24% likelihood of one person in a two-person firm dying before the age of 65 and the negative business and commercial implications this can have; it is worrying that businesses are overlooking this financial risk.”

There is a superb range of business protection solutions available to help businesses survive the death or indeed the serious illness of someone that would result in a financial loss for a business. These solutions provide a number of benefits for businesses:

  • They offer real peace of mind benefits to the directors or partners, as they remove the financial worries associated with the death or serious illness of a colleague;
  • They remove the need for businesses or surviving partners to borrow money to buy out their partner’s share of the business;
  • They remove the need for a surviving family member to take the deceased’s place in the business.

There are a number of different types of business protection solutions available to suit the different types of business structures; I have noted 3 of the main solutions below:

  • Co-director’s insurance – This is where each director insures themselves against the death of their partner, enabling them to buy out the partner’s shares on death and/or serious illness. As an alternative, the insurance can be effected by the company itself.
  • Partnership insurance – Similar to the above, a partnership takes out insurance, protecting itself against the death or serious illness of an individual partner, enabling them to compensate the deceased partner’s estate for their share of the partnership
  • Key person insurance – This helps a business to minimise the impact of the death or serious illness of a key employee. The insurance can be used to quickly attract a replacement employee or indeed to pay off loans of the company that may have been guaranteed by the deceased.

The key to finding the right solution is getting the right advice. If protecting the future of your business and family is a concern to you, always seek independent financial advice before committing to any long term plans.

Gerard O’Brien LL.B LL.M CFP®QFA is the Owner of Heritage Wealth, a Financial Planning practice based in Main Street, Midleton, Cork. For more information, contact Gerard at gerard@heritagewealth.ie www.heritagewealth.ie