In recent months, many small businesses have struggled to get by due to the impact of the coronavirus pandemic. According to research by the London School of Economics, around one in seven are at risk of closing in the near future.
If you have clients who are business owners, you can probably imagine how devastating this prospect could be for them. Not only is a business a livelihood, but it can also be very personal as it reflects their values and achievements.
When it comes to managing a company’s affairs, there can be a lot of things to think about. Read on to find out the five financial risks your clients need to consider, as well as what they can do about them.
1. Losing a key worker
When businesses are just getting started, they often rely on a small handful of key personnel for many important jobs. While this can help to keep costs down, it can also make the company very reliant on them.
For example, if one of these key members of staff falls sick and is unable to work, your clients’ business may be unable to function until they return. This could affect the company’s finances, as well as causing serious reputational damage with clients.
2. Falling victim to a scam
Since the start of the pandemic, there has been a significant rise in the number of scams. According to recent figures from the trade body UK Finance, businesses lost £59.2 million to fraud in the first half of 2021 alone. This is a worryingly high amount and represents a 35% increase on the previous year.
Fraud can pose a significant problem for small businesses, as they may be less able to absorb the cost of it. If their company’s finances are already unsteady, falling victim to a scam could be potentially devastating for your client.
3.The death of shareholders
One important issue that could affect your client’s business is the passing away of one of its shareholders. This is because the shares of the deceased will most likely pass onto a member of their family.
While this person might be happy as a silent partner, they could also want a say in how the company is run, which can sometimes cause problems. If a majority shareholder dies, your client could lose control of the business that they worked so hard to build.
Alternatively, the beneficiary of the deceased shareholder’s estate may want to sell the shares instead. If this happened, your client could buy them back and retain control, but this may cost them a significant amount of money.
4. Neglecting their cybersecurity
In an increasingly digital economy, many companies rely on the internet for both advertising and sales. However, by neglecting the cybersecurity of their businesses, your clients could be easy prey for criminals.
According to government figures, cybercrime costs the UK economy around £27 billion each year. A large portion of this is from extortion and the theft of intellectual property.
Data from the National Cyber Security Centre (NCSC) shows that the average cost of a cyberattack for small companies is £8,460. This can be a considerable sum if your client has only just started their business, as they may not be able to absorb this expense.
5. Unprotected debts
When trying to get a company up and running, loans can be an important tool. However, if your client has given personal guarantees to secure their business’ borrowing, they could be risking their future financial wellbeing.
According to data from MoneyAge, only around a fifth of small businesses have protected their loans with an appropriate type of financial cover. This could pose a serious problem for your clients if their company is unable to repay their loans.
If this happens, they may have to pay out of their own pocket and may have to sell their assets if they are unable to. In a worst-case scenario, this could lead to them losing their family home.
Seeking professional advice can help your clients to grow their business effectively
While growing a business can be hugely rewarding, there can also be a lot of issues that your clients may run into. If they want to avoid these, taking out financial protection can really help.
For example, if they rely on a small core of skilled colleagues at their business, key person protection can give them greater peace of mind. This would pay out if an essential member of staff fell ill or died, which could cover any costs while your client searches for a replacement.
Alternatively, if a shareholder passed away, shareholder protection would provide a lump sum for the remaining business owners. This could allow your client to buy the deceased’s shares from their family, if all parties are in agreement.
Working with a financial planner can help your business owner clients to find the right cover for their needs. This can help them to grow their business with confidence, secure in the knowledge that they’ll be able to overcome any potential issues.
Get in touch
If you have clients who are business owners and think they may benefit from seeking professional financial advice, please get in touch. Email hello@sovereign-ifa.co.uk or call 01454 416 653.
