Richard Kateley of Legal & General discusses how accountants can help clients to prepare for the unexpected with business protection
Small businesses form the backbone of Britain’s economy, with small and medium-sized enterprises (SMEs) thriving in almost every sector, be it retail, construction, financial services or health. Running an SME can be a hugely rewarding experience, both personally and financially, but it is a big responsibility and not without risk.
SMEs are also the largest market for accountants and they rely on accountants to provide ongoing advice and support, often including topics away from accountancy. It’s important that as an accountant you ask yourself whether you are helping your SME clients to consider all the risks to their businesses.
Considering all eventualities
Research by Legal & General has found a serious lack of awareness amongst SMEs about business protection and the associated risks of leaving a business unprotected. After all, what would happen to a business if the owner suddenly died? What if the majority shareholder was diagnosed with terminal cancer? The research found that 40% of businesses would cease trading in under a year if a key person died or became critically ill.
Many owners are of course focused on the day-to-day running of their business, and few take the time to consider the potential impact of such an eventuality on their business.
With the right knowledge, businesses are better placed to make the right decisions about protecting themselves against certain unexpected events. Accountants are ideally placed to help businesses consider these risks and secure their future.
From plan to protect
The first port of call should be for your clients to develop a succession plan or have in place an agreement regarding the future ownership of their business. To adequately prepare, your SME clients should think about key questions, including: what would happen if an owner was to unexpectedly die? Who would inherit the shares and what would they plan to do with them?
As part of this plan, your clients could also consider how a protection policy could help. Their business may be reliant on one or two key people, but have they considered the impact on their business if they were no longer there? Every business’ greatest asset is its human capital, and, by not protecting it, business owners could be risking the firm’s future, especially if an irreplaceable employee became unable to work or died. By contrast, a key person insurance policy would pay out a lump sum to your clients in such an event, covering the costs of finding and training replacements, as well as any lost income.
Many of your SME clients will also borrow to fund their future growth or expansion and it’s not uncommon for business owners to provide guarantees to lenders, such as a secured loan against their home. If the worst does happen, are they protected or are they leaving their family home at risk?
And it’s not just secured lending where there are risks. In many cases, SMEs may have Director Loan accounts, or unsecured lending that could put businesses at greater risk, with many failing to protect their ability to repay what could be sizeable debts.
If these businesses have a loan protection policy, again a lump sum would be paid to repay outstanding loans that would ultimately be recalled upon the death of the guarantor.
Education, education, education
None of us want to consider our own mortality, but by doing so we can be better prepared; thus, allowing a business the chance to continue trading and to support their staff, their families, customers and anyone else who has a financial stake in its operation.
Once a business owner has considered the issues, and is then looking for advice, he is very likely to turn to a professional for their help. Research by Legal & General revealed that when businesses wanted to learn about business protection, over three quarters (77%) would turn to either their accountants or adviser. Of those who already had protection for their business, 89% were advised to do so. If they approach you, do you already have links with an experienced business protection financial adviser? Many advisers would welcome the opportunity.
Both these professions can provide complementary services to their business clients and it’s a great opportunity to work together, utilise each other’s expertise and provide a business with a plan for the future that incorporates a fully protected solution.
Richard Kateley is head of intermediary development at Legal & General.
Legal & General and Rough Guides have produced The Rough Guide to Business Protection, a comprehensive, free e-guide giving practical information on business protection for business owners, and providing useful information and tips to help business owners understand the risks that their businesses may face and the protection solutions available.
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