In every business there are key personnel without whom
the business would suffer or, at worst, not survive at
all.
For this reason several levels of Key-Man Insurance are
worth considering to ensure that your business is not
damaged by the temporary or permanent loss of an invaluable
member of staff.
Critical Illness cover is recommended to pay a lump sum
to the business should a key director or employee be diagnosed
with a life-threatening illness to give the company the
opportunity to find a replacement or to compensate for
the financial losses that might be incurred.
PHI can also be taken out to cover the business for short-term
loss during periods of hospitalisation, but this is less
common as these policies pay weekly or monthly amounts
after a deferred period, rather than a lump sum.
Straightforward life assurance such as Level Term should
definitely be considered for all key personnel, the loss
of whom would seriously damage the business.
In all cases, of course, the company pays the premium
and is the beneficiary.
Self Employed
Self Employed persons will need to make their own pension
arrangements or they will not have a pension when they
retire.
Many self-employed business people assume that their business
can be sold when they wish to retire and that this will
produce a lump sum to provide their income in retirement.
However, for most small firms, this simply will not happen.
The business may be either unsaleable because its revenue
is reliant on a single person's skills or the sum produced
will be much lower than expected. Those relying on this
occurrence should be ruthlessly realistic in their expectations
because they may well find that it is too late to make
alternative arrangements nearer to retirement.
Pension investments can be made on a regular monthly or
annual basis or as individual single variable premiums.
If you have not yet started any pension planning then,
as a Sole Trader or Partner, you will probably be best
advised to look at a Personal Pension Plan.
Company Owners
Owners of businesses have a lot of scope to invest in
pensions, and it is very important that they use that
fund to support their business.
For example, a pension fund can invest in property, and
then rent it out to your own company, becoming your own
highly tax-efficient landlord.
This means that, not only is your rent still a tax deductible
expense, but also that it goes straight into your pension
fund, eventually to be returned to you as a pension. Your
pension fund can also act as a private bank, lending money
to the company for expansion and other development plans.
Planned Succession
How many smaller businesses close down or go out of business
at retirement, simply because the Key Man did not plan
ahead?
Planned succession is the only way ahead, grooming the
successor takes years, it means sharing and making an
unselfish approach to equity transfer for an appropriate
value. Perhaps you could think about moving aside out
over a period of time but perhaps remaining involved with
certain clients or areas of the business.
Every Company should create continuity as do solicitors
who have made it their practice to bring in young partners
so that the older ones can eventually enjoy their latter
years. Why close a business at retirement? Why not aim
for the perpetuity? Do you have a successor plan in place
or are you hoping against hope that you can sell the business
to an outside body on retirement. Consider a programmed
plan of entry and exit, with dignity and value.
Successor Business Planning should be a programmed reality
where business continues after retirement with often the
same trading name in the same office but with new people
carefully trained to take-over.
