Most businesses (and their owners) are at risk … ARE YOU ONE OF THEM?
For most business owners their major, if not their only, source of income is their business. And yet they either don’t think about the risks associated with being self employed or just brush them off with ‘it will never happen to me.’
There are a number of common events in a business’ lifetime that present major risks to the ability to generate income. If the consequences of these events haven’t been thought through and contingency plans made they can (and often do!) destroy a business.
I’m not talking about the obvious things like death or a serious injury because a sensible business person has insurance cover for those events. I’m talking about retirement and how you sell or pass on your business. Things like debt protection, key people insurance, protecting future ownership and protecting personal income and so on.
As well as providing an income during their working life many small business owners consider their business as their superannuation and expect it to provide them with their retirement income as well.
THAT PUTS A LOT OF PRESSURE ON THE BUSINESS TO PERFORM… AND KEEP PERFORMING!
If you don’t consider these issues in your planning you are placing the business and your future at great risk.
So what do you need to do?
Insure Against Loss of Key People
Most small businesses rely on one or two key people whose knowledge, experience, skill or good judgement are instrumental to the businesses success and profitability.
They could be, for example, a partner, a salesperson, a project development manager. People whose unexpected removal could lead to your business suffering a substantial loss of profits. The realities of business are that cash flow must continue and customers need reassurance that your goods and services will continue to be available. If this event has not been considered cash flow will suffer through lack of continuity of business. Or the need to buy out of the partner or finding a replacement key employee.
It is imperative that you think about these matters and that you take the necessary action to ensure the proper insurance is acquired in anticipation of such an event occurring.
Protecting Future Ownership
Of one thing you can be certain… you will, one day exit the business. Maybe it will be through selling it, passing it on to the family or by your untimely death or injury or ill health.
This event needs to be planned for just as carefully as any other to ensure the continued viability of the business and the distribution of your assets according to your wishes.
Many businesses have a buyer in mind or an employee who they expect will take over at some time in the future. You may have the person in mind… but does that person have the funds to buy you out? What if your exit is premature due to ill health or even death? A proper agreement backed up with a way to pay for it can provide a process for an orderly transfer. This will leave you and your family financially secure.
There are many other matters that must be taken into consideration if you want to protect your business, your retirement and your family. Buy/Sell Agreements, Estate Planning and protecting your personal income. Don’t leave it to chance… these things happen.
So, PLAN EARLY and PLAN WELL.
About David Officen
David is the Founder and Managing Director of proCFO. David combines an accounting and consulting background with commercial experience both as a manager for large commercial businesses and as the owner of private and family businesses.