In recognition of the issues facing business owners in respect of their intellectual and physical capital, key shareholders and business generators we have put together some initial thoughts on the questions that are being asked, to which we could find the answers.
Its apparent from speaking to many advisers participating in this market that all they want to do is fit customer needs into 'products' they can sell, which can be an issue as it doesn't always need 'financial products', in many cases a simple change of structure or shareholder/ owner agreement or Corporate Will.
Whilst we have access to some excellent 'product solutions' in the market, we have structured our process into two stages for Corporate clients.
The key elements and questions to answer in the initial consultation are:
Who are the individuals whose death or illness would create a significant pecuniary loss to the business?
There are usually divided into 3 classes:
· People with specific skills
· People who have specific Knowledge
· People who have connections
What are the internal and external business influences going to do in the event of key Director, Shareholder or Intellectual Property Owner/ Creator being out of action or lost all together?
External influences such as:
· Bankers and Financiers - who may have funded the business based on the reputation or relationship of such individual, especially if Personal Guarantees are given to secure such funding - could they curtail borrowing such as overdrafts?
· Trade Creditors - could they reduce their Terms or refuse future supply?
· Competitors - who could find themselves in the position of leverage against the business or in a position to launch takeover or buy out? Could they even take advantage of a weakness and Headhunt other key staff for their own operations?
· Customers - will they remain loyal or consider competitors products if they are unsure about the business maintaining its standards and reputation?
· Spouses/ Beneficiaries - what could they do with large shareholdings in a business they know little or nothing about
Internal influences and pressures such as:
· How are the Memorandum and Articles of Association drawn up - what provision do these documents make?
· Has a Partnership Agreement been drawn up and is it in place or are we at liberty of the Partnership Act 1890?
· Are there Cross Option Agreements in place to manage future ownership and control?
· How long will it take to recruit (and train) a suitable candidate to replace lost skills?
· What will be the impact on Turnover, Profit and cash flow?
· Can the business afford to 'buy out' a Spouse who inherits his or her partners shares?
· Does the inheriting Spouse have sufficient shareholding for a Simple Majority or Total Majority?
· Who will deal with the Spouse, what support might he or she need?
· Can the business afford to repay loans or liabilities if they are 'called in' by their bankers?
· Can it operate with tightened Credit Terms from suppliers?
· How will the employees react? could uncertainty or insecurity in the future of the business bring them look for other opportunities, possibly with direct competitors?
In looking at whose loss or impairment is typically considered detrimental to a business' welfare there are 'standard' considerations of the skills and inputs to the business such as:
The Managing Director
The MD will often be visionary, and see the big picture as to what the business goals need to be. He will often be the drive behind the business, the MD will have the skills to unite the "team" and focus the business on reaching its goals. He may be a networker with important business contacts. He may be the key to the confidence that the bank and other creditors have in the business. He may have the largest financial stake in the business, and may have lent the business money from his own resources.
The Production / Technical Director
Will be responsible for ensuring quality control and the smooth operation of the production process. May well have significant technical skills and may be key to the research and development such a business has to undertake to ensure its future survival. May have management skills and give leadership to the production team. May be part of the sales process both before and after sale dealing with important contracts. Is probably the buyer for the business.
The Finance Director
Will ensure that the products being made are profit tested and that market & economic forecasts are made. Will ensure that the company maintains its cash flow. Will ensure the capital base, i.e. its borrowing is at the right level and under control. Will therefore be the interface between the board and the bank – ensuring the bank understand the direction of the company. May deal with all the PAYE and staff issues. In a small company she may well act as the personnel manager and company secretary.
The Sales Director
Will have key contacts and networking abilities. Will have market and product knowledge. Will have negotiating skills to get the best price yet still make a profit. May have management and motivational skills.
The IT Manager
Who ensures that the E service with customer works? Who sets up and understands all the businesses internal systems? Who works closely with the production and the finance Directors? Who will be involved with all the product development ?
Case History
There was a case with a very large plc a couple of years ago, Carter & Carter which was valued at circa £500m in 2007 when its CEO died. The issues the business faced immediately meant it was liquidated in April 2008.
Phillip Carter was sadly killed in a helicopter crash on the 2nd of May 2007, by 2nd of October its shares were suspended on the LSE, the day after on the 3rd, John Green, Carter & Carter's FD resigned. By the 10th of March 2008 discussions with its bankers broke down and by the 20th they called in Administrators Deloitte & Touche.
This was an impressive company that was unable to fend off its financiers and maintain its trading position due to the loss of one key individual.
A fee of £395 for analysing the existing Business Protection arrangements (life assurance, critical illness and “key person” income protection cover) and formulating a recommendation in respect of Business Protection needs. This fee will be offset against any commission subsequently received from product providers. Details of any commission payments will be disclosed to you on request.