Congratulations, you have a successful business which you’ve worked hard to build up over the years.
It’s profitable and you may even be expanding, taking on new staff, installing a new IT package to help with financial management or making improvements to other areas of the business. The bank has been very helpful and provided a temporary overdraft while the expansion takes place. Apart from your fellow directors to share the risk you may be the main shareholder but also might have asked the bank for some financial help too. You might still deal with many of the business’s clients on a personal basis or you may have handed some or all of this responsibility to one of your up and coming star players. You are a key person in the business. Your Managing Director is a key person. Your Operations Manager may be a key person.
Step back for a minute though and consider the following:
As a key person…
• Staff rely on you for your experience.
• You’re directly and indirectly, responsible for much of the business income.
• Your clients and customers trust you to meet their needs.
• Your suppliers know that whilst you’re around, they will be paid.
• The bank knows that whilst you’re around, their money is safe.
So, like many businesses, whilst it’s run as a limited company, it still has many of the practical characteristics of a sole tradership.
If you were to die, or suffer a serious illness needing time away from the business, what would happen to the business?
• Staff could leave, fearing their jobs are at risk.
• Your skills and knowledge would need to be replaced*
• Valued clients could be lost to rivals.
• Suppliers might require payment in advance.
• The bank could call in the overdraft.
• Revenue and profits could fall.
A Potential solution
All this could be prevented if a suitable key person insurance policy, or policies, existed to provide cash at a time when it’s most needed. This could enable the bank to be repaid, provide salaries and pay suppliers, replace lost revenue and perhaps even provide a temporary replacement for you (*though of course you may be very difficult to replace!).
Crucially, the above would provide time to build up the business again, or maintain its position and reputation, rescue it or even place it in a healthier position while a buyer is found.