What family business owners need to know about protecting their business

Think about it this way. You’ve almost certainly got things like your buildings and machinery insured, your fleet of vehicles insured, and contingency plans in place to keep your IT systems running.

But what about you and your key people? What would happen to your business if you fell ill and were unable to work? What if your most trusted employee passed away or suffered a critical illness and was no longer able to work?

Would your business suffer, and would the legacy you plan to leave for your family be at risk too?

There are things you can do right now to make sure those risks are minimised.

For example, if your company has several shareholders, you might find a discussion about shareholder protection helpful. Shareholder protection insurance means the business receives a pay-out if something happens to you as the business owner, or other shareholders in the company.

That money could be used to avoid any financial disruption to the business, or to buy back the shares of a deceased shareholder. That can mean the deceased’s family is treated fairly while the business stays in the hands of its intended owners. Most policies pay out a cash lump sum in the event of the death, disability or critical illness of a shareholder or business partner.

Sometimes family businesses rely on one or two highly important employees who may not be company shareholders, but are integral to the success of the business. This may be due to their skills, experience or knowledge of the business itself.

In these cases, key person protection is well worth considering. This type of insurance policy pays out in the event of the loss or incapacity of a key individual due to death, disability, or critical illness.

It can’t replace the person you’ve lost, but it can help to replace lost business income. It can also give you the breathing space to train up other employees – or look to recruit someone from outside the business.

Again, as with shareholder protection, the business takes out the insurance policy, not the business owner or the key person. The business pays the premiums and receives any potential pay-out.

Another important area worth considering is relevant life cover, which lets family business owners offer death-in-service benefits to themselves and their employees. The company takes out the life insurance policy and pays the insurance premiums. But the owner or the employee gets to choose who would receive a lump sum pay-out in the event of their death (usually based on a multiple of their salary).

This is a very tax-efficient option for everyone concerned, as the premiums paid by the business are deemed a business expense. Any lump sum paid out in the event of that person’s death is also usually free from income tax and inheritance tax.

It’s a well-worn cliché, but the most important asset of every business is its people, and this is especially true of family businesses.

But it is possible for family business owners to avoid leaving the future to chance. With careful planning, you can make sure the hard work that you, and the people around you, have put into your business over the years doesn’t go to waste.

We can help you design a business protection plan that meets the needs of you and your business, while making use of any available tax incentives.