If the unthinkable were to happen to you, what would happen to your business?
However sombre the topic, it’s one that needs to be discussed – especially for small business owners.
In these cases, business protection could be the safety net needed to protect your business and the loved ones left behind after you pass away.
The death of a founding entrepreneur can have a massive impact on a company. Research by the University of Warwick1 found that on average, within the first four years following a founding entrepreneur’s death:
• employment drops by 17%
• sales plummet by 60%
• business survival rate decreases by 20% in comparison to similar firms with a living founding entrepreneur
Potentially even more shocking is that following the four years after their founder’s death, most companies show no sign of bouncing back.
It’s important to remember the negative financial implications of this aren’t confined to your company. Your immediate family may suffer if they depend on your business as their main source of income.
Making a succession plan
It is vital to put in place an effective succession plan for your business. You should carefully consider who you want to inherit your shares or business interest.
For example – do you want to pass it on to family, or would you prefer your co-owners buy your share with the proceeds passing to your family?
A well-written business will can ensure your business or shareholding passes on to the right people. Failure to do so could result in it passing to:
• someone who has no interest in running the business
• someone without the skills or experience to run it properly
• multiple people in conflict about how the business should be run
A business will, coupled with other arrangements, is a way to prevent such eventualities, ensuring the seamless transition of business ownership following your death.
Can the remaining shareholders/partners afford to buy your share?
Another consideration is whether the remaining owners of the business will have funds in place to purchase your share of the business from your family. Alongside a business will, there are insurances and agreements that can be put in place to pay out in the event of the death or critical illness of shareholders or key personnel. This makes sure that shares are purchased from your family so that they are financially taken care of, whilst enabling your co-owners to continue in business.
It’s important to put arrangements in place that reflect your wishes and those of your co-owners and families.
To get started, here are some questions to consider:
• Do you have a business will?
• Do you have an exit strategy?
• Do you know the value of the business? Do you have an agreed valuation method with your co-owners documented?
• What do you want to happen to your share of the business on your death and/or critical illness?
• Do you want your beneficiaries to receive the value of your share of the business?
• What do the articles of association or partnership agreement say will happen?
• Will your fellow shareholders/partners want your beneficiaries or a competitor to join the business?
• Can the remaining shareholders/partners afford to buy your share of the business? If not, who do we need to insure and for how much?
• Is there a shareholder/partnership agreement in place? Is it inheritance tax effective? When was it last reviewed?
• Does your personal will need updating?
This type of foresight and preparation are essential in securing your company’s future success.
Our expert advisers are highly experienced in arranging cover to make sure your business and loved ones are protected, whatever the future holds.
Don’t leave it to chance. A member of our friendly team is ready to discuss your requirements. Give us a call on 0117 325 2224 or email email@example.com.
England and Wales Life Tables, Office of National Statistics, 2019 ₄