Business owners: what happens if the worst happens?

Running a business can often feel like a full-time commitment and then some. Between looking after clients, managing staff, keeping an eye on cash flow and planning for the future, it's easy to put your own financial planning to the bottom of the list.

For many business owners, the possibility of becoming seriously ill or dying while the business is still operating is something they simply don't want to think about.

But it's worth asking one question.

If something happened to you tomorrow, what would happen next?

Would your business continue to operate? Would your family be financially secure? Would your business partners know what to do?

More importantly, would what you want to happen actually happen?

The impact on your business

Many businesses rely heavily on one or two key individuals. If you are responsible for generating revenue, maintaining client relationships or making strategic decisions, your absence could have an immediate financial impact.

Questions to consider include:

• Would your business have enough cash to continue operating?
• How long could wages continue to be paid?
• Would outstanding business loans still need to be repaid?
• Would customers remain with the business?
• Would someone else be able to step into your role?

For some businesses, the financial impact of losing a key individual can be significant. Planning ahead can provide valuable breathing space at what would already be a difficult time.

What happens if you have business partners?

If your business is owned by more than one shareholder or partner, another important question arises.

Who owns your shares if you die?

Without appropriate planning, your shares may pass to your beneficiaries. While this may be the right outcome from an inheritance perspective, it could leave the surviving owners running the business alongside someone who never intended to be involved.

At the same time, your family may inherit shares in a business that they cannot easily sell or generate an income from.

Neither outcome is likely to be what anyone intended.

Your family's financial security

The business may be one concern, but your family's financial position is another.

Would your mortgage be repaid?

Could your partner maintain the family's standard of living?

Would there be enough money to cover school fees, household bills or other long-term commitments?

For many business owners, a significant proportion of their wealth is tied up in the business itself. While the business may have substantial value, that value isn't always immediately accessible when it's needed most.

How protection can help

Protection is about creating financial resilience when life doesn't go to plan.

Depending on your circumstances, this may include:

Key Person Protection

If the death or serious illness of a key individual would have a financial impact on the business, key person protection can provide a lump sum to help replace lost profits, recruit a replacement, maintain cash flow or repay business borrowing.

Shareholder Protection

Shareholder protection is designed to help ensure that, following the death or critical illness of a shareholder, the remaining owners have the funds to purchase their shares at an agreed value.

This helps the surviving shareholders retain control of the business while ensuring the deceased shareholder's family receives fair value for their interest.

Personal Protection

Specialist insurance and critical illness cover can help repay mortgages, clear outstanding debts and provide financial security for your family at an already challenging time.

For some families, Family Income Benefit may also be worth considering. Rather than paying a single lump sum, it provides a regular tax-free income for a chosen period, helping to replace the income that the business owner would otherwise have provided.

Planning before it's needed

Protection isn't about expecting the worst to happen. It's about making sure the people who rely on you are looked after if it does.

The right protection should form part of a wider business continuity and financial plan. It should work alongside shareholder agreements, wills and powers of attorney to help ensure that your wishes can be carried out.

Taking the time to put these arrangements in place today can provide certainty for your family, your business partners and your employees tomorrow.

A question every business owner should ask

If you weren't here tomorrow, would your family, your staff and your fellow shareholders all be protected in the way you intend?

If you're unsure of the answer, it may be time to review your plans.

The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief is dependent on individual circumstances.

Please note income protection plans do not have a cash-in value and will stop if payments to them cease.