Protection for your people and your business

The loss of a loved one can be extremely difficult to come to terms with and whilst having a financial safety net in place won’t ease this pain, it can certainly give you one less thing to worry about.

For businesses, particularly smaller entities, having a contingency plan in place can provide real peace of mind, not only for the Director(s) and/or Shareholder(s) but also their employees.

Many smaller businesses rely on ‘key individuals’ to generate the profits and cash flow. These companies readily look to have cover in place for fire and/or flood protection, public liability or professional indemnity insurance to name a few.

Yet worryingly, few small businesses look to insure their most valuable assets, their people!

So, what risks do businesses face?

  • Borrowing – whether it be a regularly used overdraft facility or bank lending, without readily available cash to repay these debts the business could face real challenges.
  • Personal Guarantees – whilst having some life cover in place may not be a condition of the bank lending, many banks will protect their interest by way of a personal guarantee, perhaps with the client’s biggest asset, their family home.
  • Director’s Loan Account – Almost one in three business owners are unaware that these loans have to be repaid in the event of the Director’s death.
  • Over Reliance on Key People – what would your business do if that key individual was no longer around? Would you have the resources to bring in a replacement? How long would it take to replace them? And at what cost?
  • No agreement in place – What is the valuation of your company? Where do your shares go on death? What if you suffer a critical illness? Would you want your family to receive the cash value of your shareholding? Would your co-shareholders want to keep control of the business?

Perhaps you haven’t considered putting an insurance policy in place to protect your business from these risks, perhaps no one has spoken to you about this type of arrangement or perhaps, you didn’t realise you could protect yourself (at least financially) from these risks.

Recent research states that 53% of small businesses would cease trading in under a year if they lost a key person, whilst over half of UK businesses have left no instructions in a Will or any special arrangements regarding shares.

If you think you or your business would benefit from a no obligation discussion about the risks and potential solutions for your business then please contact Nathan Douse FPFS via info@mooreandsmalley.co.uk or a member of the financial planning team on 01772 821 021.

Protecting my income as a property investor

For professional landlords there are many risks inherent in the owning and renting of residential property, with many of them occurring through the occupational hazard of attracting, retaining and managing tenants. For property investors, one of the primary objectives of owning residential property is to receive regular rental income from tenants, with much of this income essential for servicing mortgages, maintaining the property in good condition and paying ongoing management fees. When properties are vacated and there is no continuing rental income, these costs may need to be borne personally or from the wider portfolio.

In considering this, it becomes apparent that the everyday risks that tenants face in their personal lives to meeting rental payments each month – accident, sickness, unemployment, death – become risks for landlords too; The “Financial Resilience” of tenants by connection affects the financial resilience of the landlord.

Tenants, however, tend to fall between marketing cracks; With no obvious need for life cover to protect a new mortgage debt there may not be the encouragement for a tenant to seek financial advice, and so many of the risks mentioned above may go unprotected. Because of this, landlords are also left vulnerable to tenants unable to meet future rent payments and eventually properties being vacated.

If you own residential property and would like to discuss this area further, please contact Ian Aldred via info@mooreandsmalley.co.uk or a member of the financial planning team on 01772 821021.

Optician firm focuses on succession and growth

Optician chain David H Myers has completed two significant deals as part of a succession planning strategy that has introduced new blood to the management team, while developing the business.

The chain, which operates branches in Southport, Penwortham, Leeds, Churchtown, and Lytham, sold a substantial minority stake in its Churchtown branch to Rob Lowther, who already owned a major shareholding in the Penwortham practice.

The deal will see Rob taking on management responsibilities for operations in Churchtown, in addition to his ongoing role in Penwortham.

In a second transaction, incoming director Paul Jones has acquired a minority stake in the Lytham practice from each of the owners, David Myers and Ian Brooker.

The Lytham deal will enable Paul to work with Ian to drive the ongoing expansion of the Lytham business.

David, who founded the business in 1979, said: “These two transactions are pivotal to our succession planning and growth strategy. The first deal allows Rob to take on a remit for managing our Churchtown practice as well as his role at Penwortham, while the second means Paul will step up at Lytham to assist Ian in a management role that will enable the further development of the branch.

“Just as importantly, the two deals will generate resources to fuel our ongoing expansion programme and we are currently in discussions with owner-managers of optician practices regarding potential acquisitions.”

David H Myers has received corporate finance, transaction services, tax and succession planning advice from the Preston team at accounts MHA Moore and Smalley.

Partner Damian Walmsley commented: “David H Myers is a successful and ambitious optician business that is managing to implement effective succession planning, while also developing the management team and creating sufficient resources to continue its expansion programme. I have every confidence that the business will continue to succeed.

David Myers added: “We have been working with the team at MHA Moore and Smalley for many years and have been consistently impressed by their friendly, yet professional approach and willingness to truly understand our business and its needs going forward.”

Why we insure our pets, but not ourselves…

When you think about a financial plan, most people will think about ways to build their wealth, be this through careful tax planning, pensions, investments, etc. So few, however, think about protecting that wealth that they have worked so hard to build up.

In a UK-wide study carried out by insurer Legal & General, it was found that the average employee would be on the breadline in just 32 days if they lost their main source of income due to death of spouse, critical illness, accident/illness resulting in being off work.

The same study found that a quarter of us would have completely exhausted our savings in one week or less, if we found ourselves in this situation. For those lucky enough to have savings which could support them longer than this, they may be compromising the quality of their life in retirement, forfeiting early retirement, using monies intended to get children on the property ladder, or leaving legacies to grandchildren.

With all this in mind, it seems strange, therefore, that we have no problem insuring our cars, valuables and pets, yet we view insuring our own lives as a lesser importance.

There are a number of reasons why this is, and some of it comes down to what psychologists call “optimism bias”.

Optimism bias is described as the enduring, against-all-odds belief that, on an individual level, things are going to work out. It is believed that this mindset stems from the human desire of control; in particular, to feel that you have control over your life, and is reported to effect over 80% of us, regardless of age or gender.

This feeling is coded within the brain’s frontal lobe, which has led some experts to conclude that optimism bias is essentially a form of survival instinct. As you can imagine, therefore, it can be very uncomfortable for us to challenge this instinct and, sadly, it often takes us, or someone close to us to go through a significant negative life event (e.g. death, critical illness, loss of income), in order to break this mentality.

So how can we protect ourselves from the pitfalls of an overly optimistic mindset, without becoming an outright pessimist?

In her 2012 TED Talk, Tali Sharot (professor of cognitive neuroscience at University College London) explains that, although on balance optimism bias can be a good thing (afterall, there is a wealth of research which shows that adopting a positive mindset can be linked to increased life expectancy, improved recovery from illness, etc), we should not be ignorant to the “cognitive illusions” that our brains like to create. Simple acknowledgement of these biases, according to Sharot, is the first step in protecting from their harms.

From here, many academics recommend that building a diverse ‘sounding board’ of trusted individuals within our lives can help us attain a more objective viewpoint at times when our own biases may cloud our judgment. As well as friends and family, this inner circle should be populated with a number of professional advisers (such as an accountant, Financial Adviser and/or solicitor), who may be able to offer enhanced impartiality when it comes to significant personal and/or financial decisions.

To conclude, although it is believed that optimism bias does generally deliver good personal outcomes, these positive outcomes could be further enhanced by acknowledging our weaknesses and building defences in the areas we are most vulnerable.

If you would like to understand more about the importance of protection for you and your family, speak to one of our Financial Advisers today.

Laurence Kelly

Professional: Laurence joined the Financial Planning Department of MHA Moore and Smalley in 2002. He has worked in Financial Services since graduating from university, is an Associate of the Chartered Insurance Institute and a Chartered Financial Planner.

He is a general practitioner specialising in Trusts, Pensions and Corporate Financial Planning. Working out of the Blackpool and Preston offices he provides holistic advice to a portfolio of clients.

Laurence is seeing an upturn in business across a wide spectrum including auto enrolment due to legislative changes, large pension funds because of changes affecting the lifetime limit, and joint ventures with solicitor practices because of the opportunities opened up by changes in the legal profession.

Personal: Laurence’s spare time is spent with his wife and 3 sons. He enjoys socialising, is a keen skier and a lifelong supporter of Blackpool FC, of which he and his sons are season ticket holders.