We recently hosted an Instagram Live session featuring Corporate Law expert Ashton Carter and Zoe Till, Partner, Chartered Financial Planner and Head of Specialist Investment Management at Nelsons, part of Lawfront. During this session, we explored key areas to help navigate business finances.
Here’s a recap of Zoe’s advice for business owners
In today’s fast-paced and ever-changing business environment, future proofing your business is essential to ensure long-term success and stability. This involves not only protecting your current operations but also planning for the future, including potential exit strategies. Here’s a comprehensive guide to help you navigate this process.
Shareholder Protection
What is Shareholder Protection?
Shareholder protection is a crucial aspect of future proofing your business. It involves creating agreements that protect the interests of shareholders in the event of unforeseen circumstances such as death, critical illness, or incapacity of a shareholder. This ensures that the business can continue to operate smoothly without disruption.
Why is Shareholder Protection important?
- Continuity: Ensures the business can continue to operate without major disruptions.
- Financial Security: Provides financial compensation to the affected shareholder’s family.
- Control: Helps remaining shareholders retain control of the business.
Implementing shareholder protection typically involves setting up a shareholder agreement and taking out life insurance policies on key shareholders. This agreement outlines the terms under which shares can be bought or sold, ensuring that the remaining shareholders have the option to purchase the shares of a departing shareholder. This can prevent unwanted third parties from gaining control of the business.
Key person cover
Key person cover is an insurance policy that a business takes out on its most important employees. These are individuals whose skills, knowledge, and experience are crucial to the business’s success.
Benefits:
- Financial Stability: Provides a financial cushion to cover the costs of finding and training a replacement.
- Business Continuity: Helps maintain business operations during the transition period.
- Investor Confidence: Reassures investors and stakeholders that the business is protected against the loss of key personnel.
To implement key person cover, identify the employees whose absence would significantly impact the business. This could include top executives, senior managers, or employees with specialised skills. The insurance policy should cover the cost of recruitment, training, and any potential loss of profits during the transition period.
Planning for life after the business
Planning for life after the business is a critical component of future proofing. This involves considering various exit strategies and ensuring you have a solid financial plan for retirement.
Exit strategies:
- Selling the business: This could be to another company, a private equity firm, or an individual buyer.
- Management buyout: Selling the business to your management team.
- Winding down: Gradually closing the business and liquidating assets.
Each exit strategy has its own set of considerations. Selling the business might provide a lump sum that can be invested for retirement, while a management buyout can ensure the business continues under familiar leadership. Winding down the business might be suitable if there are no viable buyers or successors.
Financial planning:
- Income Needs: Determine how much income you will need in retirement. According to the Retirement Living Standards, the annual income required for different standards of living in the UK are:
- https://www.retirementlivingstandards.org.uk/
- Minimum: £14,400 for a single person, £22,400 for a couple.
- Moderate: £31,300 for a single person, £43,100 for a couple.
- Comfortable: £43,100 for a single person, £59,000 for a couple.
- Cash Flow Planning: Ensure you have a steady cash flow to cover your retirement needs. This involves creating a detailed budget that accounts for all your expected expenses and sources of income.
- Pension Contributions: Make regular contributions to your pension to build a substantial retirement fund. The earlier you start, the more you can benefit from compound interest.
- Independent Financial Advice: Seek advice early to plan effectively and make informed decisions. A financial advisor can help you navigate complex financial products and create a tailored retirement plan.
Conclusion
Future proofing your business is a multifaceted process that requires careful planning and consideration. By implementing shareholder protection, key person cover, and planning for life after the business, you can ensure the long-term success and stability of your business. Remember to seek professional advice and start planning early to secure a comfortable and financially stable future.
Taking these steps not only protects your business but also provides peace of mind, knowing that you and your loved ones are prepared for whatever the future holds. Whether you aim for a basic, comfortable, or luxury retirement, thorough planning and early action are key to achieving your goals.
If you or anyone you know would like advice on anything we have covered in this blog, or need advice on other Corporate Law matters please call 08455 435 700 or contact us via our online enquiry form.
Zoe, Ashton and Charlotte’s Instagram Live is available to view @fjgsolicitors Fisher Jones Greenwood (@fjgsolicitors) • Instagram photos and video
Lawfront provide legal services to individuals and businesses through leading regional law firms Fisher Jones Greenwood LLP, Nelsons, Farleys and Slater Heelis.