Business protection The cost of unprotected success

Business protection

The cost of unprotected success

A true story

C&C folded year after

founder’s crash death

Training group Carter & Carter has gone to the wall less than a year after it’s founder was killed in a helicopter

crash……

….C&C has struggled to cope since his death

Share price

April 2007 £12.75

Co value £500m

October 2007 85p

(shares suspended)

Administrators went in in April 08

Managing Director / CEO

• Direction & vision

• Entrepreneurship

• Boardroom cohesion

Creditor

confidence

SME

Owner / Managed Business

Who needs it?

• No “substitutes bench”

• Limited market for shares

What are we going to talk about?

We really couldn’t do without him….

• Finding a replacement

• Dealing with the family

• Understanding banks, creditors and customers

• Retaining control of the business

• Providing fair value for the estate

Silos – typical SME

Vision

Direction

Leadership

Board cohesion

Bank confidence

Alan

Managing

Director

Connections

Product and

market

Negotiating

Team leader

Exports

Anne

Sales and

marketing

Research and

development

Quality control

Buying

Projects

Team leader

Frank

Technical

Director

Losing Frank – the fallout

Vision

Direction

Leadership

Board cohesion

Bank confidence

Alan

Managing

Director

Connections

Product and

market

Negotiating

Team leader

Exports

Anne

Sales and

marketing

How will theysource a

replacement?

How will they

support

the family?

What will happen to the shares?

What are the financial

consequences ?

How quickly can they source a replacement?

• Notice period • Head hunter costs • Relocation costs• Share option buy out• Package:

– Car lease– Salary / pension– Bonus

3 months

£15,000

£30,000£20,000

£5,000£60,000£20,000

£150,000


Vision

Direction

Leadership

Board cohesion

Bank confidence

Alan

Managing

Director

Connections

Product and

market

Negotiating

Team leader

Exports

Anne

Sales and

marketing


replacement?

How will they

support

the family?



consequences?

How will they support the family?

Emotional & practical

• Bereavement counselling

• Answer questions and give advice

• Discuss treatment plans

• Provide practical support for the

family

Financial support

• Can the company afford financial help?


Vision

Direction

Leadership

Board cohesion

Bank confidence

Alan

Managing

Director

Connections

Product and

market

Negotiating

Team leader

Exports

Anne

Sales and

marketing


replacement?

How will they

support

the family?



consequences?

What will the ……. competition be doing today?

• Contacting key customers?

• Approaching key staff?

• Fuelling rumours?

• Approaching the estate?

Financial consequences

How will the ……. staff feel today?

• Worried?

• Loss of morale?

• Looking for other opportunities?

• Be open to an approach from competitors?


How do the……. customers feel today?

• Will they remain loyal?

• What happens if quality and service levels fall?

• What will be the effect on turnover?

• How will the company meet its fixed costs?


How does the……. bank manager feel today?

• Attitudes changing in the credit crunch

• Banks looking to re-build capital

• Will, or can the bank fund cash-flow shortfall?

• Will they call in overdrafts?

• If they lend, will they require personal security?


How do ……. trade creditors feel today?

• Will they reduce or withdraw credit terms?

• Can they still get creditor insurance?

• Could they cease supplies?


How do ……. trade debtors feel today?

• Could be ex-customers

• If so are they likely to pay quickly?

• If not how will this affect cash flow?


What will ……. the executors of the estate be doing?

• Director loan accounts may need repaying

• Outstanding salary and bonus needs to be paid.

• Dividends may need paying


The vicious circle of doubt

CREDITORS

BA

NK

DEBTORS

££ COVER

No cash

flow

Vision

Direction

Leadership

Board cohesion

Bank confidence

Alan

Managing

Director

Connections

Product and

market

Negotiating

Team leader

Exports

Anne

Sales and

marketing


replacement?

How will they

support

the family?



consequences?

Losing Frank – The Fallout

Who inherits the shares?

• Spouse / partner?– How will they convert the shares to cash?

• Children?– If under 18 who represents them?

– If 18+ but lacks maturity?

• Majority or minority

The minority shareholder

What powers does the estate have?

• Little or no power

• No market

• No guarantee of income

The majority shareholder

What powers does the estate have?

• Appoint themselves as directors

• Remove other directors

• Control dividend strategy

• Sell control to a third party

– Subject to the articles

Articles of Association – best sales aid?

• Pre – emption rights?– Must offer to existing shareholders first

• Value clause– How will the shares be valued?

BUT – Where does the money come from?

Succession planning

• Without a properly funded “business will” you cannot be certain there will be:

1. CONTROL for the remaining shareholders

2. FAIR VALUE for the estate

Solutions

The cost of unprotected success

Solution 1

Insures

Key Person Solution

In the event

of death,

critical illness

& disability

Recruit replacement

Replace lost profit

Repays loans

Helps family

Cash

Helping Hand

• Working Transitions – Helping Hand– Temporary replacement in 48 hrs

– Assistance with sourcing permanent replacement

– Legal assistance

• Red Arc – Helping Hand– Nurse advisor

– Bereavement counselling

– Additional medical assistance for critical illness

Cross

option

agreement

Solution 2

Business trust

Tax free

benefitIn the event

of death

Fairvalue

control

Shares

Shareholder protection solution

Solution 3

Insures

Dependant’s solutions

In the event

of death

cashd

iscr

etio

nar

y

trust

depe

ndan

ts

Group life cover

The normal employee group scheme

Not available on single life basis

Single lifeRelevant life

policies(RLPs)

Excepted Non-excepted

Registered Non registered

Single Life Death in Service

Unattractive tax regime

Bright grey – only company offering on a stand alone basis

Relevant life policies

• Cost is paid by the employer

• No tax or NIC charge on the employee

• Possible tax relief on premiums

• Benefits paid (usually) tax free under a discretionary trust

• Does not form part of pension lifetime or annual allowance

How much tax is saved?

PaymentEmployees NIC @ 1%Income Tax @ 40%Employers NIC @ 12.8%Total gross cost

£1,00017

678 217

£1,912

Allowing for Corporation Tax on BIK / NICs

21% CT rate gives net cost of29.75% CT rate gives net cost of28.0% CT rate gives net cost of

£1,5101,3431,377

Assumes cost of life cover is £1,000 for a 40% tax paying director,

but treated as a benefit in kind for income tax and NICs.

Tax Rates applicable 2008/9

How much cover ?

• Replacement costs £ 150,000

• Director loan account £ 50,000

• Bank loans & overdraft £ 200,000

• Contribution to gross profit £ 250,000

• Value of shares £ 250,000

• 4 x remuneration DIS £ 300,000

Solution 1

Key Person cover

Solution 2

Share Protection

Solution 3

Death in Service

Possible total £ 1,200,000

Rewards for you?

Average AP per cover £1,250

Average covers per business

4

Total AP per business £5,000

Your Earnings ?? £8,000+

Rewards for you?

And….

Rewards for you?

Bright Grey has just increased commission for Bankhall members

by 2.5% LAUTRO for full earnings period

Summary

• 3 simple solutions will fit most businesses

– Only the minority of cases get complicated

• Bright Grey specialises in business protection

– Specialist sales team

– Specialist admin team

– Specialist underwriters (contactable)

– Specialist products

– Price match for large cases (£200+ per month)

• Professional training from experts

– Masterclasses being run throughout the UK

– One size-does-not-fit-all

– Tailored solutions to different needs

Are your clients indulging in unprotected success?

Documents

Business protection The cost of unprotected success