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Continuing story of a profitable business

Stephen Crosbie Provider View

As a businessowner, you have worked hard to get to where you are but have you taken steps to ensure your business continuity and succession is properly managed? As an adviser, you are used to mak-ing sure your clients have protected their busi-ness as well as themselves but as 2012 looms – and the implications it brings with it – have you considered protecting your own business?

Here is a case study about a fictional business but the problems this business faces could be affecting real companies, including adviser businesses, across the UK right now.


Fleet Car Sales Limited (FCS) is a multi-site company with outlets in London, Manchester and Birmingham specialising in fleet car sales.
Following the collapse of the retail car market in late 2008, the business made seven sales-people redundant. Now fleet sales are suffering. As managing director, you have also noticed a worrying number of businesses disappearing off of your contact database.

Two months ago, the key accounts sales manager suffered a heart attack and died. This week, three of his accounts have closed and more look set to walk away. You need to replace him but by the time you recruit someone suitable there may not be anything left for them to manage. The balance sheet does not make pleasant reading and your creditors are getting decidedly jittery.

If you had insured him or rather insured the profits that he generated, you would have had the money to fill the gaps his loss created. Business loans may even have been paid off on his death if his importance had been recognised by the lender at the start. With the right insur-ance in place, you could give your business a sound footing to recover from a similar loss by paying off debts, replacing lost profits and giving the business the capital to keep trading.


The death has thrown up another issue as he was one of your fellow businessowners, with 23 per cent of the company’s shares.

Ideally, you would have offered his shares as part of the package for his replacement or even spread them among the remaining business- owners. Unfortunately, the shares went to his estate and are now owned by his widow.

Right now you don’t have the capital to buy them from her and you are slightly worried that she may want to get involved in the running of the business or sell them to someone even less suitable. What could you have done differently? How does FCS as a limited company secure the right to buy shares from a businessowner’s estate? One option is to set up a legal agree-ment that gives the business the right to buy back shares on his death.

So, if the company has the right, where does the capital come from? One option is to issue new shares to raise capital but the existing business-owners may be neither willing nor able to take up the offer. Getting a fair price for the shares on the open market could also prove difficult.

Alternatively, assuming the company can afford to take on and manage more debt, secur-ing credit at an acceptable rate of interest poses another problem. But possibly the simplest and most cost-effective solution is to set up another insurance policy on this life that provides capi-tal for the firm to buy his shares from his estate.

This case study highlights the importance of business continuity and succession planning for this particular business but this could easily be applied to any business, even an adviser business when 2012 arrives.

Stephen Crosbie is head of proposition, investment and protection at Aegon



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