iAdvice Financial Services | Business Insurance and Succession Planning
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Business Insurance and Succession Planning

Business Insurance and Succession Planning

How can Business Insurance help you?

Think of a time when you might be seriously ill and you think that for a while you cannot take care of the business you are running! To cover yourself, family, business and employees from such situations you need to get a Business Protection. It helps to have some level of insurance cover to meet the needs of your business, and you can start by asking yourself—would my staff and I be okay if my business couldn’t operate for a period of time?

Business Insurance helps protect your livelihood by giving your business the cashflow it needs to cover day-to-day expenses, so you can focus on your recovery. In the event that illness or injury prevents you from working, business insurance can:

  • Provide funds to help you get back to work as soon as possible.
  • Cover business expenses while you’re sick or injured.
  • Help protect your employees from the risk that the business might be unable to continue.

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Protect your business

There are different kinds of arrangements you can get to help your business in case you, or a key person for your business, becomes disabled or dies. Here are some options:

  • Business Overheads Insurance: This will cover your business overheads if you experience illness or injury that stops you from working.
  • Key Person Insurance: This insurance provides you a lump sum if a ‘key employee’, usually an executive or partner, dies or is unable to continue working. It minimize financial disruptions in the event of death or incapacitation of someone who is critical to your business. Allows the business to maintain its value and continue operating.
  • Buy/sell Agreement: The owners of a business agree on what will happen to the business in case of the death or permanent disablement of an owner.

Now a critical question is how much insurance cover you need for your business? The answer depends on your circumstances. But there are some helpful factors which you might need to consider. But always remember these are much generalized factors and might vary depending on the nature of your business.

  • First thing you need to keep in mind that insurance products will usually have minimum and maximum amounts of cover. Try to choose the cover that best fits your requirement.
  • Understand your business’s finances, such as your usual expenses, peaks and troughs in the year, and the potential to lose revenue.
  • If you already have some insurance for your business or have an arrangement that covers your business partly then make sure you don’t overlap what’s covered.
  • Now the next thing you need to understand is how your business is structured – how will your business cope if something happens to a key employee? If you have an employee critical to your business then you must think of a way to cover that up.

A smart way of taking care of your business insurance is to review your insurance cover at least each year to understand how your circumstances have changed and to make sure your insurance reflects these changes.

Business Succession Planning

A critical part of protecting your business is to do a succession planning. Provide a contingency plan allowing your business to survive and prosper if the business owner or owners depart through retirement, illness, injury, or death. A good succession plan can help your business recover from the impact of certain unforeseen events by covering your loss of gross revenue.

The importance of the family businesses to the Australian economy continues to grow, and in a striking development, family businesses are beginning to reverse the trend of mega-businesses wiping mom-and-pop stores off the map. The recession of 2008 provided the catalyst for laid-off workers to create home-based businesses using the Internet and a low cost website to create and sell products and services.

You must consider the role family businesses play in job creation: family companies are responsible for 60 percent of the jobs in America and nearly 80 percent of new jobs created. But according to a recent PWC survey, only 52 percent of them expect that members of the next generation can do it on their own. Uncertainty about whether your junior members will have the aptitude and experience for running a company is the leading concern that you must encounter as a family business owner.

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We have a five step method for you to follow to set out a successful succession plan for your business.

Step 1: Establish Your Goals & Objectives 

  • Develop a collective vision, goals, and objectives for your business.
  • Determine the importance of continued family involvement in leadership and ownership of the business, but consider the option to bring in professional management.
  • Establish personal retirement goals and cash flow needs of retiring family owners.
  • Identify goals of next generation management, both personal and business.
  • Identify and retain a team of professional advisors.

Step 2: Establish a Decision-Making Process

  • Identify and establish governance processes for involving family members in decision-making.
  • Establish a method for dispute resolution if needed.
  • Document your succession plan in writing.
  • Communicate succession plan to family/stakeholders.

Step 3: Establish the Succession Plan

  • Identify your successors – both managers of the company and owners of the business.
  • Identify active and non-active roles for all family members.
  • Identify required additional support for the successor from family members.

Step 4: Create a Business and Owner Estate Plan

  • Address taxation implications to the owner/business upon sale or transfer of ownership, death, or divorce.
  • Review owner estate planning to minimize taxes and avoid delays in transfer of stock to remaining owners or spouse.

Step 5: Create a Transition Plan 

  • Consider options: outright purchase, gift/bequest, or a combination of these.
  • If the business is to be purchased, consider financing options including financing from an external party.
  • Establish a timeline for implementation of the succession plan.

Don’t have a succession plan or business insurance? Not to worry, we are here to help you out.

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