Setting up a new business? How to protect yourself and your company
Setting up a new company or going self-employed can be fraught with difficulties. For a start, you need to ensure the business itself will be a success, not least so it can provide you with a comfortable personal living situation.
It also involves protecting what matters. For instance, could your new business continue without you? What would you do if, as is the case for most business owners, you get no sick pay but need to take time off due to an accident or illness? And lastly, if you have employees, how valued do they feel? Are they sufficiently incentivised and motivated to perform at their best and are you doing your bit to protect them should the worst happen?
Key person insurance
“Business owners have a range of protection options,” says Robert Harvey, head of protection advice at Drewberry, a financial advice firm.
“One that’s particularly important, especially if your company relies heavily on one or two key people, is keyman insurance. This protects the company’s key players by offering the business compensation in the form of a lump sum payout should they pass away or become critically ill. This can be put to a range of uses, from mitigating loss of profits to paying for the recruitment and training of a replacement.
“Without a key person, most small businesses would conceivably flounder,” notes Harvey. “Having key person insurance is one way to reduce the impact this loss can have.”
Business owners and the self-employed usually don’t get sick pay. Leaving aside the impact you being ill could have on your business, it could also lead to personal finance problems.
“The insurance market has come up with a solution for those who would struggle in such a situation: income protection,” says Harvey.
“It pays out a regular monthly income if you can’t work for any medical reason and can be a real lifesaver for business owners who otherwise aren’t entitled to any sick pay. It’s a very popular policy with contractors who have given up the support of an employer to go it alone.
“There are even policies designed for company directors looking to protect their salary and dividend drawdown.”
If you employ staff, you’ve also got to think about their happiness. A recent Drewberry survey found that 55 per cent of workers ‘strongly agreed’ with the statement ‘I regularly feel stressed’. Money worries topped the list, with 59 per cent of people concerned about their finances.
“Stressed staff naturally can’t perform as well at work, which can be a particular problem in small businesses where there are fewer employees to share a workload,” notes Nadeem Faird, head of employee benefits at Drewberry.
“If one member of staff isn’t able to perform their best – or worse is absent – due to stress, this can have a significant knock-on impact on other employees and even the smooth running of the business itself.”
Fortunately, there are a range of employee benefits that can help. Perhaps the simplest (and cheapest insurance offering) is death in service, a life insurance policy for all employees that pays out a lump sum equivalent to a multiple of a worker’s annual salary should the employee pass away.
Other options include group income protection – which works like personal income protection but on a group scale for multiple employees – and group health insurance. The latter provides private healthcare for your workers paid for by the business, allowing your staff to receive top-notch medical care. This could get them back on their feet faster than waiting for the NHS.
“Overall, there are lots of ways business owners can protect themselves, their staff and their company, but it’s not always simple,” says Rob Harvey.
“Some insurances are complicated to set up, especially regarding their tax position. Others require a lot of legwork; you’ll need to visit each provider separately to get competitive quotes.
“The alternative is to let an experienced, whole of market advisory firm do it all for you, providing you with the peace of mind that you and your business are not only protected, but protected correctly.”