1. What is your budget?

It doesn’t matter what you need if you can’t afford it. Most businesses can’t afford “ideal world” protection because they don’t live in an ideal world. Set a budget that you can afford for now on an ongoing basis. Whatever that budget is…some protection is better than none at all. Decide on what is an ongoing affordable budget for business or personal protection. Something you know you can afford even if you go through a lean patch. That way you are more likely to come up with a realistic figure. It sounds crazy right? You might say “tell me how much X, Y & Z will cost and then I’ll tell you if I can afford it” But the only way to get a true, realistic budget is if you think of the number first. I have clients that spend £100 a month and others that spend £2,000. Most don’t start at the top, we prioritise their needs, take care of the top one or two, depending on the budget, and then review it annually.

 2. What is your biggest priority?

In most cases it’s making sure you and your family or dependants don’t suffer financially if you die or suffer a critical illness and your business folds as a result. Second to that is usually business survival. Prioritising means you can take care of the most important things first. As in point 1, it is unlikely that you can cover off all the risks in your business in one go so prioritising means at least you can take care of what is most important first and then drop the others in as and when it is affordable.

 3. Who is crucial to the ongoing success of your business? Is it just you?

Are you a one-person band? If YOU can’t work is there no revenue? Can you get someone else to do your work if you are ill? Are there people in your business that are crucial to your business functioning on a daily basis? Sales, admin, financial, IT. If X didn’t turn up on Monday morning what impact does that have…what if they don’t turn up for 6 months or ever again? You might not think some people are that important but have a think about who has passwords to IT systems, who are co-signers to bank accounts, who knows how the payroll works. If someone can’t drive can they still do their job? Sales relationships, bank relationships, overseas market relationships. There are many critical function roles in a business, have a good think.

 4. What is your business worth with you and without you?

It’s one thing selling a business while you still own and run it, another thing entirely someone else selling your business if you are unfortunate enough to pre-decease it. Will your beneficiaries get fair value? Will your staff stay on when approached by head-hunters seeing an opportunity to poach quality staff nervous about their security of tenure? Will the bank call in loans or overdrafts? At the end of the day, you want your loved ones to receive the financial benefit of what you have worked so hard to achieve in a tax efficient manner! If you are the business and it dies with you there are tax efficient policies, you can put in place to make sure you don’t leave a financial disaster behind.

 5. Do you want to be in business with your business partner’s spouse/beneficiary?

 If a shareholder dies and leaves the shares to their spouse, congratulations, you are in business with them whether you like it or not. They may have a controlling share and revert to salary only remuneration cutting off dividend revenue or decide to sell to a competitor. This leads nicely on to point 6 however pay particular attention to the “unfunded” bit of point 6. It makes sense to plan for disaster, you insure your phone, dog/cat, home, car, mobile phone. What about the thing that pays for all of that…. you.

 6. Do you have a shareholder/partnership agreement?

If you do great, but an unfunded partnership or shareholder agreement isn’t worth the paper it’s written on unless the company is cash rich or there is a funding mechanism in place. It’s all very well saying “I’ll buy your shares in the event of…” but you need the funds to do it. Going to the bank manager and saying, “My MD/FD/Sales Director etc. has just died, will you lend me the money to buy the shares from their beneficiary please?” isn’t a plan and guess what the most likely answer is….no. It’s all about being your own bank. I have a client that pays £700 for share protection which might seem like a lot. But…for less than the cost of a part time member of staff they have taken £1.5M worth of risk off their balance sheet and placed on an insurance providers balance sheet, exceptionally good value.  

7. Do you have directors loans or a building in a SIPP?

Directors’ loans and pension arrangements are immediately repayable to the estate on the death of a director. This can be a massive hit to cash flow and try selling half or a third of a building. The key phrase here is “payable to the estate of a deceased director immediately upon death” It never happens at the right time and more often than not it becomes the worst time, so boxing off as much risk as possible makes sense.