There are currently around six million active private businesses in the UK, of those 5.8 million have a workforce of up to 49 employees – of these 76% do not employ anyone aside from the owner(s). As a result, most businesses are critically dependent on just one or two key individuals for their survival and many day-to-day activities require their personal instruction.
If you own a business it’s likely that it will represent a substantial part of your wealth and finances and if it wasn’t able to operate due to you being unwell then it could have serious consequences.
Take a building surveyor, for example, who owns and runs her own business. One day, she drives off onto site and hires a cherry picker, undertaking all reasonable and necessary safety precautions. Despite this, she clambers onto the roof to inspect the work and slips and has a fall or suffers a heart attack. Who, then, is going to look after her and, say, the remaining five employees in the business? The surveyor, after all, is ultimately responsible for keeping the business running.
Although fortunately, this is not a common scenario, the risks are still very much there. Understandably, when most people establish a new business they don’t go into it in the expectation they are going to be unwell but the sobering reality is that many will suffer a serious illness before the age of 65. For example; a man aged between 20 and 40 has a one-in-11 chance of having a heart attack, one in seven of a stroke.
The good news is most people survive an illness but often their business doesn’t.
Some simple planning can help ensure the short-term survival of a business until the owner is well enough to return.
Some organisations, such as the Royal Institution of Chartered Surveyors (RICS), insist that their members take out a minimum level of insurance to cover them in the event that something happens to the firm following a business owner’s illness or mental and/or physical incapacitation.
There are also some very good insurance-based products such as Critical Illness insurance can provide a significant cash lump sum in the event of a life-shortening illness or death. Some of these insurances are even packaged as key person insurance and designed around the specific needs of a business owner.
There is also business interruption insurance which can cover financial costs in the event that a business is disrupted by natural disasters, terrorism, employee fatality, and even – at an extreme – executive kidnapping.
However, as good as insurance protection is, it won’t help with the day-to-day needs of a key person having to personally authorise and undertake the day-to-day necessities such as banking issues, paying suppliers or staff, contract negotiations or renewing leases, etc.
What people often overlook in such cases is the need for a Lasting Power of Attorney or LPA.
In order to ensure that these mundane but essential business necessities can continue, I would urge any business owners, in particular any that are running small businesses or trading on their own, to at least consider putting in place a Lasting Power of Attorney. The LPA would allow someone you trust to temporarily ensure that the business continues to operate.
Some people are simply not aware that, whilst it is possible to apply to the Court for a Deputyship to deal with an individual’s personal and business affairs whilst incapacitated, this could take up to as long as six months. By this time the business, particularly if it’s an SME, may already have ceased to be able to operate.
In the event of a more serious illness, an LPA could also allow someone to help retain value in the business by looking at bringing in new management or investigating a management buy-out, a trade sale, or even selling assets.
An LPA can be critical in allowing someone to manage your day-to-day affairs until you are able to return to work. Or, if the illness is likely to be terminal it can ensure that a better financial outcome is achieved for your heirs, as a managed exit will almost always be preferable to a transaction which is both started and concluded post-death. If nothing else, putting an LPA in place provides peace of mind to both you, as a company owner, your business partners, and to your employees.
If you would like to know more about Business LPAs and how we can help you protect yourself and your loved ones, please get in touch with FJG’s Wills, Life Planning & Probate team, call 01206 700113, or email [email protected].