NAB senior leaders discuss the economy and why there’s good news ahead for business.
A business’s most valuable asset comes in human form, in the expertise of owners and employees.
A business’s most valuable asset comes in human form, in the expertise of owners and employees. Owners who have comprehensively insured against threats to plant and equipment can still find they are vulnerable to sudden loss if the owner or an employee whose skills are vital to the business is struck down by illness.
A business without adequate income protection can quickly falter after a death or injury, according to Iain Rogers, Head of Business Development at NAB Financial Planning, who says the effects of critical illness or sudden death will spread well beyond the owner’s family to employees, business partners and their families. He has seen individuals dealing with grief or illness forced to take on extra responsibilities to keep a business functioning.
“Its common to see owners who have to return to work when they should be at home recuperating. We also see spouses forced into the business because they need the income but who are grieving and cannot add the value they otherwise might,”Rogerssays.
There are ways that businesses can prepare for unexpected tragedy. Rogerssays unnecessary risks can be avoided with insurance that maintains the value of the business by protecting against losses to three main areas: assets, revenue and owners’ equity.
Roger says business protection is particularly important for owners who have guaranteed their business loan with personal assets, and recalls a two-man partnership where one partner was killed in a car accident. Business borrowings were guaranteed by their homes and the surviving partner had to find other assets to borrow against to buy out the widow’s equity and remove her home from the loan.
“With the proper insurance, she would’ve received a fair value for her share of the business, the debts would’ve been cleared so her home would be released, and control of the business would pass to the surviving partner,” Rogers says.
The two men ran a very successful business because each of them performed different roles, but that also made the business vulnerable when the skills of one were lost. The partner who died was the salesman and when revenue fell, the remaining partner had to try to take on that role.
“Revenue protection would have injected extra funds while the remaining partner recruited a new sales person,” notes Rogers.
He says the example shows how an appropriate level of insurance will preserve the value of a business through difficult times, but warns it’s important for owners to obtain professional advice on the best solution for their business and personal circumstances. An experienced adviser will discuss risks, strategies and an affordable level of cover. “And not just broker a product. It’s an area that requires expertise,” says Rogers.
Please note: NAB has not taken into account your objectives, financial situation or needs and recommends that you consider whether any advice in this article is appropriate for your circumstances.
You may also be interested in:
© National Australia Bank Limited. ABN 12 004 044 937 AFSL and Australian Credit Licence 230686.