How does your business prepare for the unexpected? This month our guest blog comes from Tim Cole, Director at Feel Financial. Tim explores the people aspect of business continuity plans and what businesses should be planning for.

Business continuity or business resilience?

Often businesses will plan for operational disruptions through an emergency or crisis plan so that they can continue operating in the face of potential disruptions. Traditionally these will usually focus on events such as power outages, systems failures, data losses, or natural disasters. There are indemnity and liability insurances in place to cover off any professional mishaps and maybe interruption insurance to help things to get up and running with minimal down time. Therefore, everything should be fine if the business needs to cope with an unforeseen event.

But what happens if the emergency or disruption isn’t any of these?

Business continuity plans will largely focus on operationally supporting ‘the business’, but what is a business? Is it just an organisation or enterprise to conduct professional activities? Well maybe, but one thing every business will have in common is that they are owned and run by people.

All businesses have at least one person who is essential to its success, whether it’s an owner, a shareholder or a profit earning ‘key’ employee. If you own a business, that ‘key’ person is likely to be you!

Losing a principal or key employee could be catastrophic for revenue and the long-term stability of the business. Although we don’t like to think about a colleague passing or falling seriously ill, it can and does happen, therefore, to protect the business you need to have the resources in place to continue on during this turbulent and transitional time.

If you’re a shareholder in a business, it’s crucial to consider what would happen to both yourself and the company if you died or had to leave the business because of a serious illness.

Do you know what would happen to your shares?

The shares become part of a business owner’s estate on death, and they’re distributed as per their will (or the rules of intestacy if they died without a will). Therefore, the family of the deceased shareholder will typically inherit the shares, at which point they have two main options, either sell the shares or take over the deceased’s position in the company. Both options pose significant risks and could be highly undesirable to the remaining shareholders.

If you had to leave the business due to serious ill health, and unable to contribute as you once did, how would your fellow shareholders feel about effectively ending up with a sleeping partner?

Similarly, would the business cope if it lost a key employee. This is someone who is relied upon to deliver the revenue, or they have specialist skills or knowledge that is fundamental to the success of the business. How long and how much money would it take to find someone to step into their shoes and get up to speed? What would be the financial pressure and potential loss to the business while this is taking place?

What makes a resilient continuity plan?

Factoring in protecting ownership and profit and the people connected to each is essential to a resilient continuity plan. This is where business protection insurance steps in to provide the funds to support the business and shareholders to weather challenging times.

Shareholder Protection insurance provides the funds to the remaining shareholders to purchase the shares back from the absent shareholder or their estate. This saves the business having to find or raise the money at short notice to buy back the shares. The policy is supported by a cross option agreement that lays out the terms of any future share purchase and also ensures that the departed shareholder or their estate gets fair market value for the shares.

Another policy that is highly beneficial to ringfencing the business is Key Person insurance. This provides a sum of money to help and support the business to find or train up a replacement for the departed key employee. Depending on the person and skills lost, this may take several years, therefore, by providing the business with a cash injection, it allows you the time to make the right choices not rushed ones.

As the business pays the premiums, they can be treated as a deductible business expense against corporation tax. However, proceeds from claims do need to be declared as a trading receipt on the year they are received into the business.

Putting in place a business protection insurance plan offers a safety net against losing the businesses most valuable assets – its people.

Business Continuity Health Check

The next step is to understand where a business protection insurance plan can support your company to minimise its financial exposure to risks. Click on the link to run through our Business Continuity Health check, it only takes 3 minutes. Business Continuity Health Check.

For more information on services from Feel Financial visit their website or call 01483 930390.