Business Insurance Advisor

1. Facebook code HOME WHO WE HELP3 OUR SERVICES3 ABOUT US3 BLOG INVEST GREEN CONTACT U U Risky Business If an owner or key person is unable to work through illness or injury, it doesn’t take long for the business to be affected. The absence of that key person can put pressure on the rest of the team to pick up the slack or employ extra staff. The ?ow-on effects can include slower production, rising costs, or reduced revenue. Left unchecked, a cash?ow crisis can erupt as pro?ts reduce, and the business struggles to pay creditors.

2. To protect a business against these risks, there are three basic protection needs that should be covered. Asset protection Asset protection insurance helps maintain cash ?ow, credit standing and assets if a key person in the business is out of action. It can provide money needed to repay debts to banks or other creditors. It’s called asset protection because if you don’t protect your debts, your assets will more than likely be at risk, as they’re usually ?nanced by a loan or credit facility and held as security for that loan. Revenue protection Most businesses have one or more key people whose skill, knowledge, experience and leadership generate signi?cant revenue. If they were unable to work, the business could suffer a drop in revenue, or incur costs to ?nd and train a successor. Revenue protection provides a lump sum to compensate for the loss of revenue caused by the absence of that key person. It also buys the business time to adjust and keeps it alive as a going concern. If a new person needs to be employed, the insurance can provide funds to ?nance the recruitment process. Ownership protection If one of the owners of a business dies or has to exit the business because of illness, the continuing owners might struggle to negotiate and fund a buy-out of the exiting partner’s equity. This is often complicated by dealing with heirs or legal representatives of the estate, whose priorities may not include the ongoing value or viability of the business. Ownership protection insurance, coupled with a legal buy-out agreement, provides the continuing owners with the legal right of purchase at a predetermined price. It can also help fund the purchase of the exiting owner’s equity. The exiting party has peace of mind they, or their family, are going to get fair value for their business if they die, or are unable to work due to illness or disability. The continuing parties bene?t too. They can maintain control of the business without having to raise additional capital to take on more debt or be forced to hastily bring in new business partners.

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