Losing a Key Person in Your Business

Challenges for Business Owners

As a company owner or partner, you’re constantly juggling various aspects of your business to ensure its success. From day-to-day operations to financial management and customer satisfaction, the challenges are endless. However, amidst these pressing concerns, one crucial aspect often gets overlooked – risk management. It’s vital to be prepared for unforeseen circumstances that could potentially disrupt your business.

Threat to Your Business

When we think of things “going wrong,” various scenarios come to mind. A fire in a warehouse, an accident involving a company vehicle, or even a customer falling in one of your retail outlets. These are the situations where businesses typically have contingency plans in place.

However, despite your people being your most valuable asset, the potential impact of losing them is often underestimated.

Safeguarding Your Business

It’s important to explore the different strategies available when safeguarding your company against the death of one of your key personnel. Without this, you can be faced with a number of challenging situations.

Over the years, we’ve seen the death of a business owner or partner causing unintended consequences such as:

1. A bereaved widow having to step into her deceased husband’s retail business. As he was also a significant shareholder, she was forced to enter the business in his place to protect her interest. This caused significant hardship and stress for both herself and the other owners of the business. Unlike her deceased husband, she did not share their future vision of the direction of the business or any prior experience working in the industry.
2. On the death of a co-owner of a business, the surviving business partner having to secure a sizeable business loan. The loan was required to buy out the family of his deceased business partner. This resulted in a great business suddenly coming under pressure. Burdened with both the loss of a key brain behind the business and also the strain of the loan, the only realistic alternative was to seek a buyer for the successful engineering business.

With pre-planning and the correct insurance structures, each of these situations could have been avoided. There are various protection solutions available to suit the different types of business structures.

Co-Director Insurance

Each director insures themselves against the death of their partner, enabling them to buy out the partner’s shares on death and/or serious illness. As an alternative, the insurance can be implemented by the company itself.

Partnership Insurance

Similar to the above, a partnership takes out insurance, protecting itself against the death or serious illness of an individual partner, enabling them to compensate the deceased partner’s estate for their share of the partnership.

Key Person Insurance

This helps a business to minimise the impact of the death or serious illness of a key employee. The insurance can be used to quickly attract a replacement employee or indeed to pay off loans of the company that may have been guaranteed by the deceased.

Next Steps

It’s important to assess each individual business situation and enact a policy that specifically suits your circumstances and requirements. We discuss the risks to your business as part of your overall Financial Plan for your business.