Money Matters with Adrian Murphy

Dec 16 2011 by Lisa Boyle, Ayrshire Post (main ed)

IN the last week we have run seminars for our solicitor and accountancy colleagues in both Glasgow and Ayr.

We discussed a number of subjects around the table but the one area that everyone picked up on as an area of concern for their clients was the lack of protection they had in place for their business and key people.

If you are in business no matter how big or small this affects you!

Before I go into any more detail I think it would be useful to look at the extent of the problem in the UK.

Research undertaken by the British Chamber of Commerce identified a “business protection gap“ of £1.1 trillion. This includes unprotected corporate debt of £300bn, shareholder gap of £400bn and a key person gap of £400bn.

This research also highlighted that:

•98 per cent of businesses have at least one key person

•6 per cent have unprotected corporate debt

•44 per cent of owners expect their business to fold within 12 months of the death or

critical illness of a key person

•4 per cent of business owners have shareholder protection

These figures paint a pretty gloomy picture and reflect our own experience in these matters.

Everybody is quick enough to insure there home, their car, there possessions but inexplicably forget to look after the provider of these things…..their business and its people.

Every business will have at least one need for protection. This could include the need for protecting profits driven by the key person, share purchase or indeed protecting a business loan.

In our experience there is:

•No or little cover

•Cover in place- but not written in the correct manner

•Not included in the Partnership Agreement or Articles of Association

•No trust in place

•Loss of Business Property Relief by not including a Cross Option Agreement

Making sure that the value of the business is protected for the continuation of the business after the death or illness of a key person or owner is relatively inexpensive.

For a 42 year old male to cover himself for £250,000 (assuming good health) to age 60 would cost approximately £24 per month..

If this is written in trust to be paid to the relevant party in the event of death of the policyholder it could be the difference between the business surviving and going out of business.

Next week I am going to look at a real life case that was brought to our attention by a solicitor that we deal with.

Please contact me at moneymatter@murphyfinancial.co.uk if you have any questions in

the meantime.