Risk is a part of doing business. Yet while some risks – like global pandemics or national lockdowns – can’t be predicted, others can. Carrick offers business assurance solutions for those risks, helping business owners plan for events and eventualities that would otherwise harm profitability or even derail their operations entirely.
Here are a handful of the top risks business owners should be aware of, and the solutions that exist to mitigate those risks:
Death or disability of a key person
Most businesses have a key person: someone whose knowledge or expertise makes them vital to the running of the business. Key person insurance protects your business against the impact of that individual dying or becoming disabled. Key Person risk does not only apply to C-Suite executives, says Paul de Waal, Senior Wealth Specialist at Carrick. “We have often seen owners of manufacturing companies or vehicle repair centres insure a certain individual with specific knowledge or key client relationships which is deemed crucial to the success of the business,” he says.
Poaching of a highly valued employee
Some key people have specialised experience, knowledge or skills that would make them attractive to competitors. A Preferred Compensation Plan can help the business retain their services by providing them with an increase in earnings, which will vest in them after a specified period of time (for example, five or 10 years) as a tax-free lump sum. That incentive, which is funded by an endowment policy, is designed to keep the highly valued employee loyal to the company, and to remove the temptation of being headhunted by a rival employer.
Death or disability of the owner
The death of a business owner is a huge risk to any business – in terms of both business continuity and the deceased owner’s estate. A buy and sell policy is life cover that business owners take out on each other to ensure the company can continue operating if one of them should die. “This is most often used in a business where there is more than one shareholder and where there is not an abundance of liquid capital which is readily available,” De Waal explains.
A buy and sell arrangement ensures that on the death of a business owner, the business can continue running with minimal disruption, while also ensuring that their estate receives fair value for their business interest, and settlement of their credit loan account. However, as De Waal warns, “A buy and sell policy is worthless without life insurance and a buy and sell agreement. This is something that is often overlooked.”
Personal surety for business loans
Every business incurs liabilities. But often creditors (e.g. financial institutions) will ask a business owner or director to sign as personal guarantor (surety) for the business’s financial obligations to them. If the surety dies or becomes disabled, the creditors could then look to the surety’s personal estate for settlement of the debt. Contingent liability covers that risk, settling the business’s outstanding debt if the surety passes away or becomes disabled.
Every successful business needs to plan for future expenses. Often though, the business won’t have the funds or immediate liquidity available to cover those expenses. A future liability plan helps businesses to plan and pre-fund those expenses in a systematic way, using an investment vehicle like an endowment policy.
To fully assess and understand the hidden risks to your business, and to learn more about Business Assurance and the products available, contact Carrick Wealth at [email protected]