After a turbulent 2020, to say the least, many small and medium sized business owners may now be looking at their business model afresh in what we are told is the ‘new normal’. In a very simplistic way many of you may be thinking about the need to increase revenue or drive down costs, or more likely, a mixture of both.

Whilst revisiting the way your business operates, protection is often overlooked, be it protection for the business, protection for the directors and their families or protection for your workforce and if there is one thing that 2020 has taught us, it is to expect the unexpected and to take nothing for granted.

When dealing with our SME clients we always ask “what happens to your share of the business upon death” and “what would happen to the business if either yourself or a key member of staff was unable to work”. The typical responses range from a reliance on the other business owners ‘to do the right thing’ in respect of their family or an admission that the business would be likely to wind up within 12 months of losing a key person.

Often SME’s are highly reliant on their people for their success which makes considering insuring against this loss, highly important, but is often overlooked. We tend to find that this either comes down to lack of time, confusion or simply a lack of awareness of the options available.

Business protection can be broken down in a simple way as life or critical illness insurance protecting:

Profit - by releasing a cash injection into the company should a key person be unable to work through serious illness or death. This could be used to recruit a high calibre replacement and aide business cash flow during the recruitment process.

Debt – if a business loses a key person the policy can help repay a business debt, including the repayment of a directors loan account.

Ownership – if the business loses a partner or shareholder the policy proceeds can help the remaining business owners to buy the affected individual’s share of the business.

In addition, business protection is normally tax efficient, with some policies meaning that the premiums can be an allowable expense for Corporation tax or the proceeds payable tax free.

In 2017, a survey carried out by Legal & General found that 26% of directors did not know that the company had to repay the directors loan account upon death, add the cost of this to the high possibility that the director was also a shareholder and actively involved in the business – how would the business afford to meet its liabilities and keep trading?

The survey also highlighted that 75% of SME owners / directors wanted to find out more about business protection from their financial advisor and that 84% of businesses took out cover once they understood the benefits and had received advice to do so.

February 2021