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. If you do not protect your business from financial risks then its growth and stability could be jeopardised, 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 in safeguarding your assets is business protection planning. This is a proactive approach to managing risk. It involves identifying threats that could damage your business’s financial health and impact your personal financial goals. With those risks identified, you can develop a plan to protect your business and strengthen its resilience.
At this stage, it could be worth consulting experts such as financial planners, insurance specialists, lawyers, and business advisers. They can offer tailored guidance for your specific circumstances and may uncover risks you hadn’t considered.
Simple things such as a proper shareholders agreement or registering a trademark could prove to be invaluable. A shareholder's 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 choose to extend cover to protect physical assets such as buildings and equipment. However, few remember to insure their most valuable assets – their people (including themselves).
There are various forms of business insurance available in the UK that can help protect against people-related risks, including:
- Shareholder Protection Insurance: This can provide surviving shareholders with funds to buy back the shares of a deceased or seriously unwell shareholder. It may also help compensate the departing shareholder’s family. These policies are subject to terms, conditions and underwriting and may not be suitable for all business structures.
- Key Person Insurance: This is a form of life or critical illness cover a business takes out on a crucial individual – such as a founder or revenue-generating team member. If this person becomes critically ill or dies, the business may receive a lump sum payout. However, cover limits and eligibility depend on individual policy terms.
- Group Risk Insurance: These policies can offer death-in-service benefits or cover for long-term illness for employees. They can also include added-value services such as Employee Assistance Programmes and rehabilitation services. Cost and availability vary by provider and depend on the business profile.
- Private Medical Insurance (PMI): Personal Medical Insurance can help employees access medical treatment quickly, which may support a faster return to work after illness or injury. Business-funded policies are typically more cost-effective than personal ones, though premiums and level of cover differ based on age, medical history, and the breadth of services included.
These policies can play a part in a wider business continuity plan and could be valuable from a risk management perspective. However, they may not be appropriate for every business and should always be considered alongside advice from qualified insurance and financial professionals.
Other risk management strategies
As well as insurance, there are several other risk management strategies that business owners should think about:
Business succession planning
Business succession planning 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
Financial risk management is another strategy to consider. 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. This means that they take a huge risk on that business’s success and may 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 could 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.
Exploring ways to extract profits from your business in collaboration with your accountant or tax adviser can help support your personal finance goals.
How Bowmore 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 your personal finances and encompass investing, tax efficiency, 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.
Regulatory Information
- 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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