Advertisement

What should a small business do when the boss drops dead?

Key person insurance can help small businesses cope with the loss of crucial staff.

Bodyguards protecting businessman on city street © Alamy
You may not need bodyguards, but consider insuring the boss

What would happen to your business if its owner or a senior member of staff died or fell critically ill? A survey by Legal & General suggests that 26% of small businessesin Britain would have toclose in these circumstances. The insurer reckons 15% of small businesses that have experienced these problems have already shut up shop.

Advertisement - Article continues below

No wonder. In smaller businesses, knowledge, experience and expertise are often concentrated in the hands of a small number of key individuals. If one of those individuals is no longer around, the result could easily be a dramatic loss of customers or a collapse in efficiency. As sales slump and costs rise, those left running the business may not have the know-how to save it, or the time to acquire that knowledge.

Insurance could be part of the answer, particularly for businesses where there is scope to carry on if managers can just buy themselves a bit of time. Key person insurance is one possibility. This cover pays out in the event that the business loses a crucial figure named in the policy, typically the founder, the chief executive, or another vital executive. The insurance will usually cover profits lost or debts incurred as a result. It will also pay some of the expense of hiring someone to replace the executive.

Advertisement - Article continues below

Consider shareholder protection insurance too. If a director of your business dies, the remaining shareholders may want to buy their stake in the company from their heirs. This insurance provides a lump sum with which to do that.

Covering specific business loans is another option. If the founder of your business dies with loans taken out on behalf of the company still outstanding, the lender will seek to recover its money. For firms without the cash to repay such debts, insurance can help.

Make a succession plan

If you can build a workforce where people steadily take on more responsibility and augment their expertise, it should be easier for employees to cope with a disaster.

A formal succession plan, meanwhile, sets out how the company will manage as staff move on in the normal run of events, as well as if a key leader is suddenly unavailable. Planning ahead in this way and insuring against especially severe risks should be a priority for any firm and will often pay dividends even if disaster never strikes.

Advertisement
Advertisement

Recommended

Small business: how to chase late-paying customers
Small business

Small business: how to chase late-paying customers

Many small business have trouble getting their customers to pay up on time. Here's what you can do about it.
23 Jan 2020
Will insurers cough up over Covid?
Small business

Will insurers cough up over Covid?

Hundreds of thousands of small businesses should hear in September whether their insurers are legally bound to pay out on business interruption polici…
3 Aug 2020
HMRC defers tax deadline for millions of self-employed people
Small business

HMRC defers tax deadline for millions of self-employed people

The coronavirus pandemic means the 31 July payment on account date has been postponed for six months.
31 Jul 2020
Bounce Back loans pass the one million mark
Small business

Bounce Back loans pass the one million mark

More than one million small and medium-sized enterprises have now taken out Bounce Back loans.
17 Jul 2020

Most Popular

Eagle Lightweight GT: the reincarnation of the E-type Jag
Toys and gadgets

Eagle Lightweight GT: the reincarnation of the E-type Jag

Jaguar’s classic E-type sports car has been reinvented for the modern age. The result – the Eagle Lightweight GT – is a thing of beauty.
7 Aug 2020
Platinum: the precious metal that looks set to play catch-up with silver and gold
Silver and other precious metals

Platinum: the precious metal that looks set to play catch-up with silver and gold

Gold and silver continue to soar, but there's still time to get in. And there's another precious metal that looks set to go on a bull run too, says Jo…
7 Aug 2020
UK house prices hit a new record high – can it last?
House prices

UK house prices hit a new record high – can it last?

Despite the pandemic, UK house prices have hit a new high. John Stepek looks at what’s driving the surge in prices, and what it means for house prices…
7 Aug 2020