PARTNER INSIGHTS | SEVEN THINGS SERIES
By James Lindley, Director, Castell Wealth Management.
Our Seven Things series brings you practical advice from the partners and advisers we work alongside. This time, James Lindley of Castell Wealth Management shares what every business owner should have in place before something goes wrong.
When you’re building a business, your attention is usually on what’s next. The next client, the next hire, the next funding round or the next phase of growth.
Very few founders wake up thinking about what would happen if they couldn’t work tomorrow, a key employee became seriously ill or a business partner unexpectedly passed away.
Yet these are precisely the events that can undo years of hard work.
In my experience advising business owners, I’ve found that some of the most commercially successful founders are surprisingly exposed when it comes to protecting what they’ve built. They have ambitious growth plans, talented teams and impressive revenues, but relatively little provision for the unexpected.
The problem is that business continuity tends to slip down the priority list until something forces it to the top.
Here are seven things I believe every business owner should have in place before that happens.
1. A business that can function without you
If you disappeared from the business for three months tomorrow, what would happen?
It’s a question I encourage founders to consider seriously.
In high-growth businesses, the founder is often the principal salesperson, decision-maker, relationship manager and strategic driving force. That concentration of responsibility might work brilliantly while you’re available, but it creates significant vulnerability.
Start by identifying the decisions, relationships and processes that depend entirely on you. Who can authorise payments? Who manages your largest client accounts? Who understands the financial commitments you’ve made?
Document the essentials, delegate authority appropriately and ensure at least one trusted person understands how the business operates beyond their own department.
The ultimate test is whether your business can continue trading effectively when you’re unavailable. If the answer is no, that’s a risk worth addressing now.
2. Financial protection for the people your business depends on
Most founders understand the importance of insuring their premises, equipment and professional liabilities. Far fewer give the same attention to the people whose knowledge, relationships and expertise generate their revenue.
Consider your technical director, your lead salesperson or the co-founder responsible for operations. What would losing any one of them mean financially?
Key person insurance can provide a financial payment to the business if an insured individual dies or suffers a covered serious illness, depending on the policy. That money could help cover lost profits, recruitment costs, temporary expertise or other pressures during a difficult transition.
My advice is to identify the individuals whose absence would materially affect profitability, then estimate the financial impact of losing them for six to twelve months.
Insure against the financial consequences, rather than simply choosing a convenient level of cover. Review that calculation as the business grows.
3. A shareholder agreement that accounts for the unexpected
If you own your business with other shareholders, you need to understand what happens if one of you dies or becomes seriously ill.
Without appropriate arrangements, a deceased shareholder’s shares may pass into their estate, potentially leaving the surviving owners in business with someone who has little interest in running the company.
The family, meanwhile, could inherit a valuable but illiquid asset that they cannot easily sell.
This is where shareholder agreements and shareholder protection arrangements become particularly important.
A properly structured agreement, supported where appropriate by life or critical illness insurance, can provide a mechanism for surviving shareholders to purchase shares while ensuring the departing shareholder or their family receives an agreed financial value.
The legal agreement and insurance arrangements need to work together. Having one without checking the other can leave significant gaps.
If you have fellow shareholders, ask your solicitor to review your agreement and work with a financial adviser to assess how any agreed purchase would be funded.
4. Enough liquidity to survive a serious disruption
A profitable business can still run out of cash.
I’ve seen how quickly a company’s financial position can become uncomfortable when anticipated revenue is delayed, a major customer stops paying or an unexpected expense arrives.
High-growth businesses can be especially vulnerable because cash is frequently reinvested into recruitment, technology, expansion and working capital.
I encourage founders to stress-test their cashflow against realistic adverse scenarios.
What happens if your largest customer delays payment for 90 days? Could you continue meeting payroll if revenue dropped by 30%? What if you had to replace a senior employee unexpectedly?
Build a rolling cashflow forecast and understand your minimum monthly operating requirements. Consider what cash reserves or committed facilities would be needed to withstand a disruption.
There is no universal number of months’ expenditure that every business should hold. The right level depends on your business model, revenue concentration, financing arrangements and exposure to risk.
The important thing is knowing your position before you need the money.
5. Personal financial protection that doesn’t rely on the business
Founders are often excellent at reinvesting in their companies and much less disciplined about protecting their own financial position.
Your business may be your largest asset, your primary income source and your intended retirement fund.
That creates considerable concentration of risk.
If you became seriously ill and couldn’t work, would your household finances remain secure? Could you continue paying your mortgage and supporting your family without drawing money from the business?
Personal income protection, critical illness cover and life insurance can each address different financial risks, subject to their terms and eligibility requirements.
It’s also worth reviewing your pension arrangements, accessible savings and how much of your personal wealth is tied up in the company.
I encourage founders to think about their personal and business finances together. A business continuity plan is considerably stronger when the founder’s own financial security has been considered.
6. A clear plan for operational disruption
Not every business-threatening event involves the loss of a person.
Cyberattacks, data breaches, supplier failures, system outages and property damage can all interrupt trading, sometimes for longer than expected.
The question I would ask is simple: if your business couldn’t operate normally for the next 72 hours, who would do what?
Your continuity plan should identify critical systems, essential suppliers, alternative working arrangements and the people responsible for coordinating a response.
Check that important records are securely backed up, that appropriate staff can access essential information and that responsibilities are clear.
Review your commercial insurance with a qualified specialist, including relevant cyber and business interruption cover. Understand exclusions, waiting periods and the circumstances in which a claim would actually be paid.
A policy alone won’t restore operations. You need practical arrangements for keeping the business functioning while the financial protection does its job.
And please test the plan. A document nobody has read is unlikely to be much help during an emergency.
7. A coordinated plan that you actually review
Perhaps the most common problem I encounter is fragmentation.
A founder has a solicitor who drafted a shareholder agreement several years ago, an accountant who handles the company finances, an insurance broker who arranged policies at incorporation and a financial adviser looking after personal investments.
Each professional may be doing an excellent job, but nobody has necessarily checked whether all the arrangements still fit together.
Businesses change quickly. Shareholdings evolve, valuations increase, new directors join and financial commitments grow.
An insurance policy arranged when your company was worth £500,000 may be inadequate several years later. An old shareholder agreement may no longer reflect ownership or funding arrangements.
Bring your advisers together periodically and ask them to review the complete picture.
Are the agreements current? Are insurance sums appropriate? Is ownership correctly documented? Are the intended beneficiaries and policy structures right? Does the business have sufficient liquidity?
I would suggest a formal annual review, with additional checks after major events such as funding rounds, acquisitions or changes in ownership.
Protecting the business is part of building it
The most successful founders I work with tend to be optimistic by nature. They see opportunity where others see obstacles, and that mindset is often what makes their businesses successful.
I wouldn’t want to change that.
But optimism should be supported by preparation.
You don’t need to spend your working life anticipating disaster. You do need to understand the events that could threaten your business, your employees and your family’s financial security.
If you’re unsure where to begin, start with one exercise: write down the three events that would cause the greatest financial damage to your business and establish what arrangements you currently have to deal with them.
You may discover you’re well prepared. You may identify some uncomfortable gaps.
Either way, you’ll be making decisions from a position of greater understanding.
And that’s a much better place to be when something unexpected happens.
This article is for general information only and does not constitute personal financial, legal or insurance advice. Insurance benefits depend on policy terms, conditions and exclusions. Business owners should seek appropriate professional advice for their circumstances.
Author: James Lindley, Director of Castell Wealth Management
James Lindley is Managing Director of Castell Wealth Management, a financial planning firm working with successful individuals, families and business owners. James advises entrepreneurs and company directors on protecting their wealth, planning for financial independence and aligning their business success with their personal financial goals.
