Business protection – the salient issues

I read in the news recently that administrators had been called into the national training group Carter & Carter following the death of founding CEO last year.

Commentators have drawn a connection between these two events and as a protagonist for business protection I am unlikely to disagree. The share price of nearly £13 just before his death gave a business a value of around £500 million, but fell to 85p before their recent suspension.

I suspect that a lot of people will lose their jobs, creditors will probably recover pennies in the pound and their financial advisers will lose a substantial client.

This story struck me as very pertinent when considering business protection.

Losing the Key Person
A good CEO gives direction and vision to the business and has the leadership skills that bring the boardroom cohesion necessary to deliver that vision.

Lose that and if the successors make the wrong decisions, financial stability is undermined and the creditors will eventually withdraw their support.

I don’t have enough detail of this company to know what went on in the boardroom after Carter’s death, but I think that events speak for themselves.

This was a listed company and in theory had more chance of having a “substitutes bench” in place to ensure a smooth succession. In a private owner managed company the situation is usually worse.

The directors can often work in “silos” within their own
specialities. The production director who ensures the
quality of delivery, the finance director who brings cash
flow stability and is the interface with the bank, or the
sales and marketing director with the key customer
relationships. The problem is that on the loss of one of
these individuals there is no one with the requisite skills
and knowledge to step into the breech.

The consequences can be customers deserting, turnover collapsing, trade creditors refusing credit and banks withdrawing support. All this strangles cash flow and with no cash you have no business.

Losing the Owner
There are also the issues of ownership. In a private company what happens to the business share? On the death of a majority shareholder how do the remaining directors ensure continued control of their business? For a minority shareholder how does the estate get a fair market value for the shares they probably don’t want?

The articles of association and the partnership agreement might have procedures in place as to who can buy and at what price, but without hard cash to put on the table then the clauses can be just a recipe for expensive litigation.

Business Protection is about providing the right
money to protect the cash flow of the business on the
loss of a key person and ensure continued control of
the business and a fair value for the estate on the loss
of an owner.

The problem is that often this key area is overlooked
possibly because many advisers are nervous about the process. I am not going to pretend that it as easy as
insuring your bicycle as there are a number of factors
such as corporation tax and IHT that need to be considered. However it is not as complex as the pensions world and once learned the rules tend not to change.

Bright Grey has approached this market with a view to providing the specialist support IFAs need. We have created a specialist sales team, a dedicated customer care team, dedicated underwriters and technical support from established industry specialists. Bright Grey’s Business Protection plans also include practical and emotional support through its unique Helping Hand service.

For more information please call us on 0845 6094 500 or email