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In every business there are key personnel without whom the
business would suffer or, at worst, not survive at all.
For this reason several levels of Key-Man Insurance are worth
considering to ensure that your business is not damaged by
the temporary or permanent loss of an invaluable member of
staff.
Critical Illness cover is recommended to pay a lump sum to
the business should a key director or employee be diagnosed
with a life-threatening illness to give the company the opportunity
to find a replacement or to compensate for the financial losses
that might be incurred.
PHI can also be taken out to cover the business for short-term
loss during periods of hospitalisation, but this is less common
as these policies pay weekly or monthly amounts after a deferred
period, rather than a lump sum.
Straightforward life assurance such as Level Term should
definitely be considered for all key personnel, the loss of
whom would seriously damage the business.
In all cases, of course, the company pays the premium and
is the beneficiary.
Self Employed
Self Employed persons will need to make their own pension
arrangements or they will not have a pension when they retire.
Many self-employed business people assume that their business
can be sold when they wish to retire and that this will produce
a lump sum to provide their income in retirement. However,
for most small firms, this simply will not happen.
The business may be either unsaleable because its revenue
is reliant on a single person's skills or the sum produced
will be much lower than expected. Those relying on this occurrence
should be ruthlessly realistic in their expectations because
they may well find that it is too late to make alternative
arrangements nearer to retirement.
Pension investments can be made on a regular monthly or annual
basis or as individual single variable premiums.
If you have not yet started any pension planning then, as
a Sole Trader or Partner, you will probably be best advised
to look at a Personal Pension Plan.
Company Owners
Owners of businesses have a lot of scope to invest in pensions,
and it is very important that they use that fund to support
their business.
For example, a pension fund can invest in property, and then
rent it out to your own company, becoming your own highly
tax-efficient landlord.
This means that, not only is your rent still a tax deductible
expense, but also that it goes straight into your pension
fund, eventually to be returned to you as a pension. Your
pension fund can also act as a private bank, lending money
to the company for expansion and other development plans.
Planned Succession
How many smaller businesses close down or go out of business
at retirement, simply because the Key Man did not plan ahead?
Planned succession is the only way ahead, grooming the successor
takes years, it means sharing and making an unselfish approach
to equity transfer for an appropriate value. Perhaps you could
think about moving aside out over a period of time but perhaps
remaining involved with certain clients or areas of the business.
Every Company should create continuity as do solicitors who
have made it their practice to bring in young partners so
that the older ones can eventually enjoy their latter years.
Why close a business at retirement? Why not aim for the perpetuity?
Do you have a successor plan in place or are you hoping against
hope that you can sell the business to an outside body on
retirement. Consider a programmed plan of entry and exit,
with dignity and value.
Successor Business Planning should be a programmed reality
where business continues after retirement with often the same
trading name in the same office but with new people carefully
trained to take-over.
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