How to protect your business from financial risks

In the business world, risk management is one of the keys to success. When you’re running a business, unforeseen challenges – from economic downturns to legal entanglements – can arise at any time. These can jeopardise your company’s growth and stability, as well as your own financial security and that of your family.

In this guide, we will highlight some simple steps that you can take to understand how to protect your business financially. Whether you are still in the building phase or starting to think about an exit, these strategies can help you safeguard your assets and ensure that you leave a legacy for future generations.

Business protection planning

The first step when it comes to safeguarding your assets is business protection planning. This is a proactive approach to risk management that involves identifying potential risks that could negatively impact your business’s financial health – and hinder your ability to achieve your own financial goals – and then developing a comprehensive plan to protect your business against these risks.

At this stage of the process, it can pay to consult experts such as business advisers, financial advisers, insurance specialists, and lawyers. These experts will be able to offer tailored advice that is appropriate for you and your business and may identify risks that you were unaware of.

Simple things such as a proper shareholders agreement or registering a trademark could prove to be invaluable. A shareholders agreement can ensure that all owners of the business know their rights, expectations and future plans from the start, while registering name or product trademarks or patents will help to protect the very core of your business; especially if your company relies on a name or a unique feature.

How to protect your business against people risks

Business owners are required by law to hold certain forms of insurance. Many also choose to extend cover to protect physical assets such as buildings and equipment. However, very few remember to  insure their most valuable assets – their people (including themselves).

There are a range of different forms of insurance that can help you protect your business against people risks including:

  • Shareholder Protection Insurance: this offers a two-fold benefit – providing the remaining shareholders the financial support to be able to buy back the shares of a deceased/seriously unwell shareholder whilst providing that individual’s family recompense for their financial loss.
  • Key Person Insurance: this is a form of insurance that a company purchases on the life of anyone considered crucial to the business. The aim is to provide a financial cushion (essentially a “loss of profit or business interruption cover”) if the business is faced with the sudden loss of a key employee due to sickness, disability or death.
  • Group Risk Insurance: this can be especially helpful to smaller companies which may have only limited internal employee support infrastructure. Policies can be arranged – often at less than 2% payroll cost to cover death, long-term absence or critical illness of not only the directors but also some or all staff. In addition, many of these policies now include a wide range of ancillary benefits including Employee Assistance Programs, Employee Wellbeing Support, return to work and rehab strategies, virtual GP services and other discounts and benefits.
  • Private Medical Insurance: purchasing through a company is often a far cheaper way of accessing private healthcare than on an individual basis and schemes can be crafted to suit the needs of the personnel, whilst working within the company’s budget and ultimately helping to get your team back to work from an acute health event far sooner.

All of these forms of insurance can be valuable from a risk and business management perspective. If something unfortunate happens to you, or one of your employees, you should be covered financially. The risk of not having these types of insurance is that it could be a significant drag to the business should you not have cover and in some instances, enough to actually cause a business to fold.

Other risk management strategies

As well as  insurance, there are several other risk management strategies that business owners should think about.

Business succession planning is one such strategy. This outlines the process of transferring ownership and control of your business to a successor (possibly to the next generation) when you are no longer able to manage it. Shareholder agreements are important here. These clearly define what will occur should something happen to one of the shareholders, or indeed if there is a breakdown in relationships and a shareholder needs to exit.

Financial risk management is another. This involves managing credit risks and ensuring timely payment of debts in order to maintain strong financials. If your business has a lot of cash on its books, you may want to diversify it across several different financial institutions for safety.

Building wealth outside your business now

Finally, it’s worth pointing out that as a business owner, you have an opportunity to build personal wealth alongside your corporate wealth. Doing this can de-risk your overall financial situation significantly.

Many business owners focus too much on their business becoming their sole source of future wealth, meaning that they take a huge risk on that business’s success and ignore the planning opportunities along the way that can protect and even enhance not only the owner’s wealth, but potentially that of the business as well.

Think of building up assets outside your business as a defensive strategy. Not only will it give you – and your family – more financial security (and give you a better chance of sharing your legacy with the next generation), but it will also give you more control and flexibility. With assets outside your business, you have the option of maintaining ownership of your business in the future and selling it when you want to.

In the UK, there are a number of ways that you can extract profit from a business to build personal wealth without restricting business activity or investment within the business.

Using methods to extract profits tax efficiently from the business; creating the right corporate structure and having clear sight of your eventual exit plans are all strategies that can help to ensure the business journey is as efficient as possible.

How we can help

At Bowmore Financial Planning, we specialise in helping business owners with financial planning and risk management. Our aim is to help you understand how to protect your business, so you can operate with greater peace of mind, knowing that your assets, and your wealth, are safeguarded from potential risks.

We can help you to identify what’s best for you and assist in putting a holistic financial plan in place. As a business owner, this plan should apply business principles to personal planning, and incorporate investing, tax minimisation, retirement planning, estate planning, asset protection, and more.

Want to find out more about how we can help you manage your wealth as a business owner? Get in touch with us today.

BOWMORE FINANCIAL PLANNING

Phone: 01275 462 469

enquiries@bowmorefp.com

  • Bowmore Financial Planning Ltd is authorised and regulated by the Financial Conduct Authority
  • Bowmore Financial Planning Ltd is not regulated to provide tax advice
  • The Financial Conduct Authority does not regulate Estate Planning or Inheritance Tax Planning

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