How to protect your business and manage risks

Business protection

One of the key areas when advising new businesses, is to look at protecting key persons and debt due from customers. Every business is different and therefore the insurance needs will typically be dependent on what your business does, its structure, the physical location and whether you have any employees.

Another area to consider is key person insurance. People who have their own business may carry out a significant part of the day-to-day responsibilities. If that owner dies, the family may struggle to run the business. Even where more than one person heads up a business, the loss of one person can cause serious disruption.

There are costs that can come along with the loss of a key person, such as a reduction in customer business or general operational activity, leading to a loss of turnover, inefficient use of time spent reorganising responsibilities, recruitment costs, disruption of development plans and an increased level of stress for the remaining staff. It may even cause an overall loss of confidence in the business.

Protection is valuable, but as it is not tangible it is often not considered.

Some protection is better than no protection, and the younger the key person is, the cheaper the protection plans are likely to be. As a key person get older there is more chance of needing the policy and their health can also change and can exclude certain health conditions. As this is an increased risk for the insurer, the cost of the protection is likely to increase.

If protection is taken out, it must be reviewed over time to ensure that it is still adequate. For example, if the business expands, the level of cover provided may need to increase.

Other protections are available for employees, and in the UK, new employees would expect to see certain plans in place at a business when they join. Employers are required to offer a workplace pension to employees (unless they are not eligible), and there are minimum levels of contributions. The aim is to ensure individuals have saved enough to live a comfortable lifestyle in retirement.

Death in service is something employers often offer. Private medical insurance is also an option – a lot of job applicants/employees look for this benefit especially as it can often offer cover for their family. There is also group protection – income protection and critical illness. These are not always offered but can attract the right employees and retain them in the long term. It can also help your business by helping employees come back to work more quickly if they become unwell.

Planning for the future

Where your business has achieved success, you may find that there is excess cash. Financial planning and cashflow forecasting can ensure a business makes the best use of their assets.

Our specialists help businesses plan investing activities, and there are three stages to consider:

• short-term cashflows and the need for access to cash for working capital fluctuations and potential emergency costs
• medium-term cashflows and any plans or possibilities for reinvestment into the business, for expansion or diversification
• long-term cashflows, looking at investment in a diversified portfolio and potential retirement or inheritance plans. As part of this the clients’ attitude to risk and overall objectives would be incorporated.

It is key for your business to have live, up to date accounting records to be able to forecast cashflows in a meaningful way. Until a need arises, business owners may not focus on this. It also helps to keep records within modern accounting software, to be able to extract the information easily. This is also important to be able to review the forecasts on a regular basis or when something changes.

When creating a financial plan for business or individuals we will look firstly at the goals and objectives and then create a plan to show how they can achieve this. Tax considerations and structuring the plan and investments in the most tax efficient way will be an important part of this, but tax breaks should not be the driver in financial planning.

An example of a specific objective that could be planned for is if a business owner wanted to sell their business in the future and achieve the ongoing income required for their retirement. Good planning can provide guidance on how to best to structure their investments and any future business sale.

If an individual has already made or sold their business and/or investments and it transpires that this had not been done in the most beneficial way, it is often possible to improve the situation. Options can include restructuring investments to use tax efficiencies available to help offset tax, for example income tax liability reductions, deferral of capital gains tax and business relief. This can save individuals substantial amounts.

How Crowe can help

Our Financial Planning team is well placed to provide guidance and assistance in protection and cashflow and investment forecasting, planning and implementation. Our Business Solutions team can assist with ensuring your business’ financial records are in shape to prepare for any planning. If you are considering any of the areas covered here, please contact Talitha Gibney or Nasiba Vaiya, or your usual Crowe contact.