Very small businesses, often referred to as micro businesses, frequently fail to allow for the risks they face.

The main reason most business owners give for this oversight is they are just too busy working in the business to focus on what ‘might’ happen.

But that really isn’t a good enough excuse. Owners of even the smallest businesses need to carry out a comprehensive risk assessment. This should include documenting as many conceivable events as possible, including but certainly not limited to:

• suppliers going out of business,
• major customers taking their business elsewhere,
• internal and external theft,
• data loss, and
• a landlord refusing to renew a lease.

However, one of the most important factors is the ongoing availability of the business principals.

Key person insurance

When a small business depends upon the work of one or even two people, what happens in the event of their illness must be seriously considered. While individuals may be covered for income protection, ongoing business costs also need to be covered if revenue stops.

Typical expenses include rent, wages, advertising, accounting fees, business insurance, equipment leasing, telephone and electricity. Each business is individual and has its own unique expense schedule.

Some items require special consideration, particularly if there may be a personal use factor. This could apply to the leasing of motor vehicles, mortgage payments or use of a home office. Employees may also be less productive in the absence of their employer. In these instances it is important to obtain professional advice when establishing the policy to ensure you are fully and correctly covered in the event of a claim.

Could this be you?

John and Brian operated a small manufacturing business. Their personal skills and experience were highly complementary, with Brian supervising manufacturing while John handled administration and marketing.

They recognised the risks of one becoming unavailable and, after taking appropriate advice, entered into a buy/sell agreement including taking out a key person insurance policy on the life of each partner.

Shortly afterwards, Brian died in a car accident. The proceeds from the policy on Brian’s life enabled John to buy Brian’s share and pay out his widow.  Without this, John would not have had sufficient funds available and may have been forced to sell the business.

You might be a busy business owner, but don’t get too busy to settle the important things.  Talk to your financial adviser about the potential risks and the protection available.

Want to know more?

To make sure your business and your family, have the cover they need, please make an appointment with my office. Together we can look at your circumstances and recommend a strategy that is right for you.

Talk to a Lewis Financial Adviser. Get the cover you need.