At Citywide one of our specialisms is working with business owners on their financial plans. As a business you’ll understand the importance of your star performers and you’ll appreciate the value of rewards and incentives to keep them doing what they do best. But what happens when they’re not around anymore?

In 2016 the UK had a total of 5.3 million businesses employing fewer than 10 people – 96% of all businesses.¹ If that describes yours, then losing a colleague because of death or serious illness could take out 10% or more your workforce. If they’re a key figure in the company, the impact on profits, plans and your ability to deliver, therefore your reputation, could be much higher. In 2013, Legal and General research found that 40% of businesses would cease to trade within a year if a key figure died or became critically ill. Many owners admit they’d find it difficult to hire a replacement within six months and 60% believe it would take them up to a year.²

What can you do about it?

One of the ways you might want to consider preparing for this kind of event is ‘key man insurance’. Also known by the less gender-specific term ‘key person protection’ it’s an insurance policy that covers your critical employees should they be out of action. The benefits with this type of policy are paid out to the business, which means they can be used to cover both the immediate costs to the company and the longer-term outlay associated with finding a replacement.

Key man insurance can help your business to continue trading if an owner or other essential person dies, or is diagnosed with a terminal illness. It’s a way to ensure that debts are repaid and that should the worst happen to a business owner, any shares from their estate can be bought back into the company.

Who should you insure?

It’s up to you to work out who your key people are, but there are some basics to start with. A key person is anyone whose skills, knowledge and experience contribute to the success of your business. That could be the big hitters like your Chairman, Managing Director, Marketing Manager or Finance Director. But don’t stop there. Your ‘key people’ could also include non-executive specialists whose contribution is still essential to long-term survival. Think about your IT infrastructure, your project planners and lead generators. How would you carry out business as usual in their absence? If there’s a potential loss of profit, time, business relationships or contacts, then there’s a good chance you’re looking at a key person.

Remember, it’s just one part of a complete continuity approach

While it’s a good idea to think about insuring the most valuable human assets in your business, remember it’s not a cure-all in itself. While you’re looking at business continuity, you need to think beyond just illness and injury. There’s always the very real possibility that key figures will leave a business under their own steam, which is something that insurance, at least in the literal sense, can’t help with.

For example, if you’ve come to rely on one talented lead generator, what would you do if they were headhunted by a competitor or if they decide to strike out on their own? That’s why it’s important to include things like Standard Operating Procedures (SOPs) and non-competition agreements in your planning process.

The first provides a way to make sure you understand how your key figures operate, so that should they leave, you’re able to pick up where they left off. It means documenting their procedures and maybe having someone shadowing them, so that if they go, they don’t take all their secrets with them. Non-competition agreements on the other hand, are there to make sure key employees don’t take all YOUR secrets with them.

Getting these right and ensuring they’re enforceable is another subject in itself – the point is that planning for future continuity has to be holistic – insuring against illness, injury or death is one part of it, along with protecting your business against other types of personnel issues.

If you need any help with Financial & business planning  just give us a call on 01372 365950. We know that choosing the right professional financial adviser can be difficult. If you’d like to find out more about Citywide Financial Partners, book an appointment and we’ll travel to meet you – wherever and whenever suits you.  We’ll explore your goals and aspirations and discuss building a strategy to get you where you want to be – all at no obligation to you.