Putting appropriate protection policies in place can help your clients - and advisers' own firms - with succession planning to ensure the longevity of the business.
When it comes to planning for the future, many business owners will feel secure having money in the bank to cover any potential hires or even to use on the acquisition trail.
But what happens if that cash is called upon in the short-term, such as to compensate for the loss of a key partner or person in the firm?
It may be that clients have enough cash in the bank to cover any potential issues around replacing key personnel.
In 2016, it was pointed out that many companies – from FTSE 100 banks down to micro-businesses – had not only built up any cash buffers required by legislation but also had over and above their target limit.
If your firm and those of your clients have 30 per cent realisable cash, then perhaps there is no business imperative to buy protection.
But while this sounds positive, it must also be remembered that Mike Cherry, chairman of the Federation of Small Businesses (FSB), warned earlier this year that 50,000 small and medium-sized businesses go under each year because of late payments alone.
Moreover, 80 new companies were born every hour in 2016, according to FSB figures, most of which will not have had the time or the market share to build up sufficient cash buffers.
Andy Simmons, senior protection specialist for Vitality Life, states: “With the rise of the gig economy, more people are becoming self-employed and starting new companies.
“The role of business protection has never been so important.”
It therefore stands to reason any sudden costs due to the death or illness of the owner or key person will need to be covered somehow to ensure the continuance of the firm – either by a sale or part-sale of the business or goods, loans from the bank or through insurance.
Richard Kateley, head of intermediary development for Legal & General, comments: “In most business protection cases, it is small businesses that are set to benefit the most.
“The engineering company on your trading estate, the payroll firm or the retail shop on the high street. In many cases, business owners are no different than an adviser’s individual clients. The firms they run might even be no different in size to the adviser’s own.”
Sole traders
For the sole trader who does not intend to pass the firm onto another, Tom Conner, director at Drewberry, says business protection might not always be appropriate.
This is because, generally, the firm would be wound up anyway on the death of the sole trader, so there would be less need for business protection to help with succession planning.
