Don’t fall into the protection gap

Today marks the launch of Legal & General and unbiased.co.uk’s ‘Every Business Matters’ campaign aimed at making sure your business is protected.

 
The research has found that there is a staggering £683 billion protection gap. Around one million small businesses across the UK are exposing themselves to serious financial risk through the absence of protection insurance. The ‘Every Business Matters’ campaign aims to tackle ‘business protection apathy’ and demonstrate the value of financial advice to business owners.

To see more findings from the research you can visit our Every Business Matters webpage.
   
Claire Walsh explains why having business protection is so important.
  

I recently advised two men running a small but growing media agency to take out partnership protection. Like many growing businesses the partnership does not tend to hold much cash, and on discussing matters with the two partners they admitted that should either of them die they didn’t know where they’d find the money to buy the other partners’ family out of the company.

What is partnership protection?

Partnership share protection is designed to ensure funds are available to purchase a partner’s shares if one should die. An option may also be given to the deceased’s personal representatives to sell the deceased’s share to the continuing partners on death.

Breathing space

While these two men have a loyal workforce, they are driving forces of their business. If either of the partners died they estimated that this would significantly reduce the businesses turnover and profits.  Because of this, I recommended each partner take out a life cover for a sum equal to the value of their share of the partnership plus an additional amount to compensate for the lost profits. If something terrible occurred, the remaining partner would have some breathing space while the business stabilised.

Option to buy

I recommended that both policies be written under trust for the benefit of the other partner and a cross-option agreement be affected which stipulates surviving partner has the option to buy the deceased shares and the personal representatives of the deceased’s estate have the option to sell the shares. Should either side exercise their option the other side must comply.  This agreement also set outs the agreed valuation of the partnership and, as the business is still growing, I have recommended this be regularly reviewed.

But for the time being, it is huge weight off the partners’ minds, knowing that they and their families are protected should the worst happen and allowing them to focus on driving their business forward.