Why you must protect the key people in your business

As a business owner, you have more risks to consider than an equivalent employee. For instance, in the event of illness or injury, employees often have leave entitlements to fall back on. You, the business owner, do not.

Additionally, employees generally don’t have a vested interest in the business they are employed by. In most cases, this means employees aren’t affected by the consequences of their absence. As a business owner however, you are exposed to these consequences. The buck stops with you.

As a business owner, you rely on your business to provide you with income. Because of this, it is absolutely critical that your business operates profitably. If it doesn’t, you won’t have an income. It’s that simple.

If your business is not making money, you won’t have income to meet business expenses such as debts, overheads and wages. Furthermore, without income, you won’t be able to provide for your family and meet mortgage repayments and household and living expenses.

The bottom line? You must put measures in place to protect the profitability of your business.

But where do you start?

The first thing you need to do is consider all the people involved in your business and how their involvement impacts profitability. Of these people, which are the most crucial to the performance of your business? For instance, is your business heavily (or solely) reliant on you, your business partner(s) or a key employee to make a profit?

You then need to consider the consequences for your business if one (or more) of these people was temporarily or permanently absent as a result of illness, injury, disability or death. You should consider these consequences over the short term (up to 3 months), long term (12 months or more) and indefinitely (e.g. in the event of death or total and permanent disability).

In doing this, consider issues like these:

How would the day-to-day running of my business be affected?

How would my relationships with suppliers and customers be affected? Would my professional reputation be at risk?

What about work in progress? Could this be completed as promised?

Would my business still be able to meet its commitments? Is there a risk it could fail and close down?

Would I need to hire other employees to keep my business going and if so, could I afford to?

Because my business has multiple owners, what will happen if an owner departs suddenly? Will the remaining owners buy out their share? How would this be funded? Would I want their spouse working in my business?

Before you can look at putting solutions in place to protect your business’s profitability, you need to work through these sorts of issues. Make sure you spend some time doing this. It’s important your analysis is thorough and you don’t miss anything. And make sure you are honest with yourself. For instance, we’ve seen plenty of (controlling) business owners that won’t acknowledge the extent to which their employees contribute to profitability.

In terms of solutions, you can protect your business from the consequences above with various insurances. Taking out insurance for the key people in your business can ensure you continue receiving income if illness, injury, disability or death occurs.

But protecting your business in this way is often a complex matter, so we recommend you seek advice from an expert before taking action.

And remember, if your business doesn’t make money, you won’t have an income. So if the key people in your business are protected, so is your income.



This advice may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances. Please seek personal financial and tax advice prior to acting on this information.Opinions constitute our judgement at the time of issue and are subject to change. Financial Planning Expert Pty Ltd does not give any warranty of accuracy, nor accept any responsibility for errors or omissions in this document.
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    Financial Planning Expert is an independent financial planning business based in Melbourne. We provide genuinely independent and conflict free financial advice. We’re experts in self-managed superannuation fund (SMSFs) advice and strategy, retirement planning, property and share investment advice, life and income protection insurance, tax planning, asset protection, estate planning and advice for Australian expatriates.