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Friday, 15 November 2013

Friday Guest Blog: Business Succession and Business Survival - Do You Value Your Staff?


By David Dawson, Financial Planning Director at Cottons Financial Planning Group Limited

Most businesses will say yes to this rather leading question, but not many businesses make the direct correlation between staff and profit. Certain members of staff will make a massive contribution to the profitability of the organisation they work for but strangely business owners overlook the impact that unexpected death or illness may bring. Losing key people at the wrong time can send the business into a downward spiral! Consider the costs involved in finding a qualified and experienced replacement, the sudden loss of confidence felt by co-workers, management and creditors, the loss of external relationships and the loss of business efficiency that the death or critical illness of a key person can bring. 

Enlightened business owners de-risk their profit and loss account by taking out key person insurance. It is relatively inexpensive and the cost may be tax relievable if set up in the right way.

The process is simple; evaluate the employee in terms of loss of profit (sometimes the reduction in business turnover) and take out short term insurance. Cottons can help you with finding the most relevant insurance provider and can offer assistance to your accountant to ensure the best possible outcome for you and your business.

Do you have business partners or co-shareholders? Control of your business is at risk if arrangements are not in place to allow for the purchase of shareholdings from deceased or seriously ill shareholders. These arrangements protect families from the trauma brought on by the shareholder becoming seriously ill or dying as well as allowing surviving shareholders total control. Arrangements are easily put in place which create the right money in the right hands at the right time without compromising valuable Inheritance Tax reliefs. Cottons are experienced practitioners who will help you through each stage of this strategy. We will work with your other professional advisers to ensure that your business and your ambitions are not shattered by the unexpected illness or death of a shareholder. Generally the shareholders take out insurance in trust for the other shareholders benefit and an option agreement triggers share transfers. Sometimes the business itself will take out the insurance and buy and cancel shares from the deceased shareholder’s estate. Cottons can work alongside other professionals to find the optimum solution.

The above text assumes that the business is a limited company. If the business is a partnership or LLP similar arrangements can be put in place using partnership agreements and options.  

Businesses can also insure the cost of executive pay so that should a shareholder director be incapacitated the cost of maintaining that person’s salary is met out of the benefits of an insurance contract. This allows the business to focus on profits and dividends rather than getting concerned about cashflow.  It also allows time for due consideration of the options available to both the incapacitated and the other shareholders.

In summary all businesses should know what their strategy to manage succession and business survival is. The time to mend the roof is when the sun is shining. The time to consider the risks associated with human resource is when things are working well. This is one area where the ‘do it now’ philosophy pays dividends. 

Call us today to protect your valuable business assets on 0161 216 4020 or email david.dawson@cottonsfp.com 




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