Would your business survive the unexpected loss of key people – whether it’s you or a key team member?
The majority of businesses have insurance in place to protect them financially against physical damage to their premises, however very few have taken measures to protect their most valuable business assets – their key people.
While material assets (office equipment and stock) can easily be replaced, good people are hard to find. The loss of the owner or key team member can have a substantial impact on profitability, operational management and the goodwill of your business. Many businesses, especially smaller organisations, find there are no suitable candidates available within the organisation and it takes substantial time and money to recruit an external replacement.
The unexpected involuntary exit of the owner or key managers from a business causes severe financial stress. The ultimate result, if strategies are not in place, can be the failure of the business.
What measures can you put in place to minimise the impact?
Business plans should be reviewed to include strategies for:
- Retirement – planned
- Death – unplanned
- Resignation – unplanned
- Disability – unplanned
Each plan needs to be addressed with a combination of strategies that can be implemented, including the means to fund the strategies to minimise the financial impact.
Key situations to address in your planning process are:
1. For businesses with more than one owner
- How will the business continue after the death or disability of one of the owners?
- Is there a buy/sell agreement in place between the owners to transfer ownership of the business?
- How is the transfer between owners going to be funded?
- Has a value been placed on the business and has this been regularly updated?
2. For businesses with one owner
- How will the business continue if you are unable to work for an extended period?
- Are there business expenses requiring payment during that time?
- How can the reduction in income be minimised?
3. For businesses with key managers
- What will the financial impact to the business be if a key person is unable to perform their duties for an extended period?
- Has a strategy been put in place to minimise the potential financial loss?
Strategies for these situations can be implemented using the assistance of your accountant, solicitor and financial adviser.
For full details call 6686 2622.