Author: Steve Skujins

How safe is your business?

Do the right thing by your employees and your family and give Business Protection the proper consideration in 2014. Some simple tips from our Business Banking Manager Steve Skujins may help.

Hopefully, your business enjoyed an encouraging or successful 2013.

If this was the case, you would have had a relatively relaxing Christmas and New Year and are ready to jump back into the fray for an even bigger 2014.

But before you open shop again this year, it may be wise to stop for a second and consider a few hypothetical questions, such as;

  • What would happen to your business if you or another irreplaceable employee were injured and unable to work?
  • What would happen if you were unable to meet your business expenses or provide an income for you and your family?

Okay, it’s probably a bit early in the New Year to be asking such scary hypothetical questions, but each one of these scenarios are something business owners may have to face at some stage.

Not ensuring your business has the right level of protection is a risky oversight. The right cover can provide your business with a timely lifeline and can help you protect personal and business assets, offset any reduction in business revenue, fund orderly transfers of business ownership and meet a range of other objectives.

At The Greater, we want all our business customers to rest easy in the knowledge they have the right cover for all eventualities, and we feel the first step on the road to water-tight business protection is making a complimentary, obligation-free appointment with a Bridges financial planner. In some cases, premiums associated with business protection may be tax deductible, so make sure to discuss this with your accountant.

A Bridges financial planner will work to tailor a strategy specifically for your business needs.

A few examples of why your business may need protection may include:

Case study 1: Brad protects his young family from his business liabilities

Brad, aged 41, is married to Beth, aged 36. They have a young family and own a home worth $650,000.

Brad wants to expand his cleaning business and to do this he needs to raise some capital. After assessing his options, he borrows $250,000 from a bank and, as part of the loan agreement, he signs a guarantee using the family home as security.

One of the conditions of the loan is that the debt must be repaid immediately if he dies or becomes totally and permanently disabled. His financial planner explains that, if either of these events occur, the only way he’ll be able to repay the loan is to sell either the business or the family home. Both these options would have significant drawbacks.

  •  Selling the business assumes there will be a willing buyer prepared to pay a reasonable price, unlikely given how much the business relies on Brad.
  • Selling the family home can present similar challenges, compounded by Brad’s family having to find somewhere else to live.

Brad could also face problems if he suffers a critical illness and is unable to meet the loan repayments – particularly if he takes a while to recover or is unable to return to work.

After assessing Brad’s goals and financial situation, his financial planner recommends he takes out $250,000 in life, TPD and critical illness insurance. If the unthinkable happens, he (or his estate) will receive the necessary cash to repay the loan and extinguish the guarantee.

Case study 2: Jill protects her business income from unexpected difficulties

Jill, aged 43, has owned and operated a large and successful garden nursery for many years.

As she wanted to maintain ownership while freeing up some time to concentrate on other commitments, she employed Anna to manage the day-to-day operations. Anna’s management and sales skills, as well as her extensive horticultural knowledge, greatly increase the nursery’s revenue and customer base.

A year later, Anna was diagnosed with cancer and her doctor advised her to retire. This resulted in an immediate reduction in business revenue and Jill incurred significant costs to recruit and train a suitable replacement.

Fortunately, Jill had spoken to a financial planner and, as a result, had taken out a life and total & permanent disability and critical illness policy on Anna’s life before she was diagnosed with cancer.

As a result, Jill received a critical illness benefit and was able to use the money to find a suitable replacement and offset the drop in revenue and profits experienced during this period of upheaval.

Case study 3: Holly protects her income from illness or injury

Holly is a self-employed architect and receives an income from her business of $120,000 pa. She owns a home worth $575,000 and has a mortgage of $375,000.

If she is unable to work due to illness or injury, she would like to be able to meet her living expenses and mortgage repayments without having to eat into her limited savings.

After assessing her goals and financial situation, Holly’s financial planner recommends she takes out income protection insurance to cover 75 per cent of her monthly income.

Unfortunately, after taking out the insurance, Holly is involved in a bad car accident and is unable to work for six months.  Because Holly had income protection insurance, she receives the full benefit of $7,500 per month for five months after her initial one month waiting period. As a result, she receives a total income of $37,500 during the six months which means she can spend that time recovering without worrying about her income.

If Holly had not taken out income protection insurance, she would have received little (if any) income during this period and would have struggled to meet her living expenses, mortgage repayments and out-of-pocket medical costs.

Your business is important, and it deserves the proper protection. If you feel you could use some more cover, or just a little more information, why not make a complimentary, obligation-free appointment with a Bridges financial planner today?

You can make an appointment with a Bridges financial planner by:

  • Making an Enquiry online
  • Giving The Greater a call on 1300 651 400
  • Visiting your nearest branch

Have you experienced similar problems running your small business? Or would you simply like to know more about Financial Planning? Why not let us know in the comments below?