Running any business carries with it a number of risks. Those that relate directly to business trading are easily recognisable and are the focus of every management team’s efforts, yet financial risks are equally important and can often lead to business failure if they remain unmanaged. Here at Arlo Associates we recognise the importance of financial risk management and have developed a suite of business risk products which can be tailored to any business’s individual needs.
What is Key Man insurance and does my business need it?
Key Man insurance is simply Life insurance on the key persons in your business that pays out on death or serious illness. The purpose of this is to help the company survive the impact of losing the crucial people that make the business work, this could be one or a number of people that the business couldn't function without. It is difficult to find time to consider something that isn't really urgent at that pressing moment but is incredibly important and may be the difference between the company surviving or not.
Look at your business and work out who is irreplaceable in the short term, in many small-medium enterprises it is the founder who holds the business together, be it managing employees, book keeping or handling customers if that employee is gone, the business pretty much stops. Sadly it happens all to often and a business closes within a short period of time. Key Man insurance simply prevents the closure and helps support the business in those difficult times.
Professional Indemnity Insurance (PI) is a form of liability insurance, any person who gives advice or offers similar services in a professional capacity is seen by clients as an expert. While most firms enjoy good relationships with their clients, if a mistake where a client suffers a significant financial loss as a result of negligence, they are likely to seek recompense.
Professional indemnity helps protect companies from bearing the full cost of defending against a negligence claim made by a client and damages awarded in a civil lawsuit. Regardless of how many years your business may have traded, there is always the possibility you or one of your employees could make a mistake, the cost of gambling against this could have huge consequences and one that no business should ignore.
Without careful planning and consideration if a director or business partner dies the surviving directors could run the risk of the shares passing to someone with no interest in the company. This will force a change in your ownership structure, making it necessary to draw on cash reserves and assets. A protection policy taken out on the relevant shareholder, could ensure the surviving business owners have the right and are able to afford to buy the deceased's share of the business from his/her estate, it also ensures that the deceased's family are not left with an unwanted share in the business.
• Does your business have key employees without whom performance would suffer?
• Would it make sense to protect cashflow in the event of a loss of one of those individuals?
• How important would it be to protect your business from a substantial client claim for what they see as negligence?
• Have you considered the impact of an enforced shareholder change in the event of bereavement?
• Does it make sense to manage these kinds of risks rather than taking a gamble they won’t happen?
Business continuity is a key aspect of the overall advice we at Arlo Associates view as essential for any company. We know these risks exist and we also know how devastating it can be to have any one of these potentially fatal risks materialise.
Our business advisory team have dedicated their careers to helping organisations just like yours and they can bring their experience, knowledge and understanding to your business. Our view is centered on the long-term success of your business; because we know yours is.
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