Saving a business’s life with the right protection

Karin and Nick* run, a small, successful bistro business, as a limited company. Nick is ‘front of house’, welcoming customers and making them feel at home, whilst Karin, as chef, is responsible for designing and preparing a mouthwatering selection of dishes.

Karin and Nick were referred to us by their accountant as they wanted to look at the merits of putting some of the company profits into a pension scheme in order to save corporation tax.

During the initial meeting, it became apparent that Karin and Nick were both key to the business as it was their flair and culinary skills that really generated the business and hence the profits.

Whilst initially, they just wanted to discuss pension planning, an in depth discussion about their short term and long term objectives highlighted that the business could suffer financially in the event of either of them dying or suffering a serious illness.

Some months later, Karin was diagnosed with cancer, which meant taking time off work for treatment. Obviously Nick wanted to spend time with her, accompanying her to the hospital and taking the pressure off her, around the house and with the children. Whilst Nick could spend some time at the Bistro, it did mean that depending on Karin’s treatment, there would be gaps when he couldn’t be there.

The couple, therefore, decided to take on a temporary chef until such time as Karin could return to work, and to pay someone to cover for Nick when he was unavailable – all of which was an additional cost to the business.

At our first meeting with the couple, we had recommended a key person life and critical illness policy, which would pay out a designated sum in the event of the death or diagnosis of a critical illness for either Karin or Nick. As the policy was owned by the limited company, the sum of £100,000 was paid to the company tax free within two weeks of Karin’s diagnosis.

This cash injection into the company helped cash flow and allowed the couple to employ a chef and to increase staff hours to help Nick with the front of house duties. There was sufficient cash to also reduce the borrowings they had on overdraft with the bank which again helped cash flow.

As Karin (now recovered) said, without having the key person policy in place their business would have probably folded, increasing pressure at a time when they had enough to cope with. The policy has meant they are all back at work and the business has subsequently gone from strength to strength.

We find many small and medium sized businesses insure the buildings, cars, computers etc. but often neglect to cover the most important thing; the person who makes the business run and generates the profit. If you’d like to discuss whether you have the right protection in place, get in touch here.

*Names have been changed

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