Owner-Managed Businesses

Protecting your most important business asset

28th January 2022

A master of your own destiny

Cast your mind back to the day you decided to start your own business. You had a vision of using your expertise to become the master of your own destiny. You probably dreamt of a life in which your business delivered not just a short-term living but also long-term security, extending all the way into retirement.

Either at the outset or along the way, you may have partnered with, or recruited, other people whose expertise makes them instrumental in shaping that bottom line figure – you know, the important one that you see at the end of your accounts next to the words ‘Net Profit’.

What’s your most valuable asset?

So ask yourself this: what is the most valuable asset your business currently has? Quite possibly, to answer this question you’ll look around at all of your tangible assets – the equipment, the computers, the machinery, even the buildings – and assume that these are the most valuable. After all, these are the assets that you insure every year… the assets that, during your annual insurance renewal meeting, you are asked to value. They are also the assets that you willingly spend money to protect; insuring these assets is all about business continuity through periods of unexpected adversity.

But these tangible assets are merely possessions; they are as much the results of the success of your business as they are the tools for achieving future success. So the asset that has enabled you to accrue these possessions must be more valuable, surely?

Put simply, that ‘asset’ is the expertise that the key people in your business bring to the table. It is the specialist knowledge, experience and contacts that you and your key colleagues have, which make your business what it is today, as well as what it will be tomorrow. For any business, its key people are its most valuable assets.

Preparing your business for scenarios

So what happens if one of these key people is suddenly lost? The theft of a person seems far fetched and it’s equally difficult to see how flooding or fire could play much of a part, but death and serious illness are certainly factors that can have a huge impact.

We all know people who have either died too young, or who have been diagnosed with a serious illness, despite having been apparently healthy right up to the point of diagnosis. These unfortunate events do happen, so how would your business cope without one or more of its key contributors?

Well, for starters, there might be a need to recruit a replacement. It could be costly and time consuming to find someone who can fill the shoes of a key person, not to mention the fact that a new member of the team will inevitably have a ‘lead in’ period of non-profitability. How would your business meet those costs at a time when, by definition, its ability to generate income is damaged?

It is also perfectly conceivable that your business will lose some key clients along with the key person, where a strong working relationship existed based on the unique connection built up between those two parties. This will inevitably result in a loss of revenue impacting on bottom line profitability.

Or a change to the business plan may be needed – a complete re-structure which could be costly, quite aside from the fact that it might mean a dramatic and undesirable change in business direction.

Or, in the event that the key person is taken seriously ill but where there is hope that they may return at some point, there might simply be a need to make sure that the business can continue to ‘tick over’ for the period where its ability to generate income is stifled.

In any event, business leaders should be identifying and developing the people in their organisation who can take on more responsibility over time and, if necessary, step into others’ shoes. This would help to spread the load and reduce the risk of relying on a handful of individuals who are critical to business success.

Time to put protection in place

To help fund any of these options, or a whole host of others, your business can insure against the loss of a key person through death or serious illness, just as easily as it can insure its tangible assets against theft, floods or fire.

By putting in place a key person protection policy, which insures the individual concerned, you can make sure that the business receives an injection of capital at that most crucial of moments, thus protecting its ability to survive and flourish even if one of your key people were temporarily or permanently out of action.

Remember, your key people are not assets that you can simply replace by contacting one of your suppliers, so shouldn’t they be insured accordingly? In the words of Richard Branson: “A company’s employees are its greatest asset, and your people are your product.”

Key person protection could be the most important decision that you ever make. As well as insuring the short-term profitability of the business, you are protecting your ability to achieve your longer-term objectives and these, surely, are the reasons you started the business in the first place.