Last week, the UK got their annual Sugar rush with the launch of the latest series of The Apprentice. The show launched this year with a slight change in format. This year, the prize is no longer a job offer from Lord Sugar but a £250,000 cash injection and partnership in a business of the winner’s choice.
With such a large up-front injection of capital, something the winner and Sugar might want to consider is how to protect their new joint business venture.
Business continuity and succession planning for many businesses may not be high on their priority list. However, losing a key employee, espec-ially one with Sugar’s credentials, could have a devastating effect financially on a business?
The same applies to the other side of the partnership and doubtless Sugar will be keen to ensure that any investment he makes in a start-up business with one of this year’s contestants on the show is protected.
Anyone planning on setting up a business, whether as a sole trader, limited company or as a partnership should ask themselves the following two important questions:
First, could the business survive if something were to happen to them or another key employee?
If the answer to this question is no or even maybe not, business continuity should be considered.
Second, who would get control of the business if something were to happen to me or a joint owner?
If the answer to this question is I don’t know or probably someone I don’t know, then business succession planning should also be considered.
Business protection makes sure the business continues to trade and allows the owners to maintain control of the business while making sure their dependants receive a fair value for their share of the business.
Businesses look to protect themselves against many things, protecting their buildings, contents, materials, vehicles and so on. However, the vast majority do not look to insure their biggest asset, their key employees.
To make sure a business can continue, the owners need to consider whether the business could continue to trade or would suffer financially if it lost an employee who was key to the business or would have the necessary cashflow to replace any loss of profit or repay any outstanding loans, including directors’ loans.
Cash is the lifeblood of any business and there will be many components of a business that are reliant on it continuing to generate cash. For example, fixed assets, investments, stock, employees, overheads, debt, debtors, sales to name but a few. Businesses don’t go bust – in the short term – due to loss of profit, it is loss of cash.
Furthermore, what other interests might the business have that are reliant on continuity and succession of the business? A client may have investments, pensions or other products reliant on the business having cash.
Why succession matters
Frequently, little or no consideration is given to the succession plans for a business.
Business succession planning involves transferring the ownership and control of a business, most likely through retirement, to new management. It’s a key part in protecting the stability and continuity of the business.
Business owners must also think about what they would want to happen if they were to suddenly die or become critically ill. Who would they want to get control of their business and how and where would the money come from to make sure this happened?
The need to have business succession plans in place is immediate and could be devastating for the business if not thought through properly.
What to look for
For any business protection policy one of the key factors has to be a flexible and technical underwriting service. Advisers should be looking for providers that have a dedicated specialist large sum assured underwriting team, with significant exper-ience in underwriting business protection. This approach enables them to take a more practical hands on approach throughout the whole appli-cation process, which is essen-tial for these cases.
Financial and medical underwriting limits can also be a factor when choosing the right business protection policy. Competitive limits can mean a faster turnaround and require less evidence making the underwriting process a lot less tedious for both adviser and client.
If your client is keen to get cover in place as soon as poss-ible, an immediate cover facility also needs to be an option. If your client’s appli-cation and financial evidence is satisfactory, some providers will put cover in place immediately while they request any routine medical information.
Business owners such as Sugar and his young appren-tices have worked hard to get to where they are today, but have they taken the steps needed to ensure their busin-ess continuity and succession plans are properly managed?
So, if anyone reading this is an adviser to Sugar or some-one pursuing a similar business venture – it might be a good time to have a word.