presented by name to be entered title to be entered scottish provident presentation title: the cost...
TRANSCRIPT
Presented byNAME TO BE ENTEREDTITLE TO BE ENTEREDScottish Provident
Presentation title:
The cost of unprotected success – the three key questions
Business Protection
Business Protection
April 2007 £12.75
Co value £500m
October 2007 £0.85p
(shares suspended)
Administrators went in in April 08
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
The effect of losing a key person
Business Protection
*Research on behalf of Scottish Provident by Omnibus, February 2010
What went wrong
CreditorConfidence
Business Protection
Solicitors Bank
Other consequences
SolicitorsSolicitors
AuditorsAuditors
IFAsIFAs
BankBank
ClientsClients
CreditorsCreditors
Business Protection
Owner / Managed Business
• No ‘substitutes bench’
• Limited market for shares
Image placementof BP image
Business Protection
The owner managed business4 key business functions
• Address any problems
• Leadership
• Financial control
• Production
• Sales
Business Protection
FrankTechnical
Director
R&D
Quality control
Buying
Projects
Contracts
Team leader
PeterFinance
Director
Cash flow
Credit control
Cost control
Forecasting
Profit testing
Loans/Capital tax
Co Sec
AnneSales and
marketing
Connections
Product & market
Negotiating
Team leader
Exports
AlanManaging
Director
Vision
Direction
Leadership
Board cohesion
Bank confidence
Silos – Custom Control Systems Ltd
Business Protection
PeterFinance
Director
Cash flow
Credit control
Cost control
Forecasting
Profit testing
Loans/Capital tax
Co Sec
AnneSales and
marketing
Connections
Product & market
Negotiating
Team leader
Exports
AlanManaging
Director
Vision
Direction
Leadership
Board cohesion
Bank confidence
Silos – Custom Control Systems Ltd
Business Protection
How will they
source a
replacement?
What are the
financial
consequences?
What will happen
to the shares?
PeterFinance
Director
Cash flow
Credit control
Cost control
Forecasting
Profit testing
Loans/Capital tax
Co Sec
AnneSales and
marketing
Connections
Product & market
Negotiating
Team leader
Exports
AlanManaging
Director
Vision
Direction
Leadership
Board cohesion
Bank confidence
Silos – Custom Control Systems Ltd
Business Protection
How will they
source a
replacement?
PeterFinance
Director
Cash flow
Credit control
Cost control
Forecasting
Profit testing
Loans/Capital tax
Co Sec
AnneSales and
marketing
Connections
Product & market
Negotiating
Team leader
Exports
AlanManaging
Director
Vision
Direction
Leadership
Board cohesion
Bank confidence
Silos – Custom Control Systems Ltd
Business Protection
• Time 3-6 months
• Head hunter costs £15,000
• Share option buy out 10,000
• Relocation costs 20,000
How quickly can they source a replacement?
Business Protection
How quickly can they source a replacement?Friends Provident paid £370,000 for Trevor Matthews to move home
Matthews received the ‘relocation allowance’ for his move from Edinburgh
to Dorking, Surrey. A spokesman for Friends Provident says:
‘Relocation costs are a standard part of most employee contracts
where people have to move location for their role.’
‘It was extremely important for us to be able to secure Trevor Matthews’
appointment to us.’
Money Marketing – 15/09/2009
Business Protection
• Time
• Head hunter costs
• Share option buy out
• Relocation costs
• Package
– Car lease
– Salary / pension
– Bonus
3-6 months
£15,000
10,000
20,000
£5,000
£40,000
10,000
£100,000
How quickly can they source a replacement?
Business Protection
How will they
source a
replacement?
What are the
financial
consequences?
PeterFinance
Director
Cash flow
Credit control
Cost control
Forecasting
Profit testing
Loans/Capital tax
Co Sec
AnneSales and
marketing
Connections
Product & market
Negotiating
Team leader
Exports
AlanManaging
Director
Vision
Direction
Leadership
Board cohesion
Bank confidence
The three key questions
Business Protection
• Will they remain loyal?
• What happens if quality and service levels fail?
• What will be the effect on turnover and gross profit?
• How will the company meet its fixed costs?
What are the financial consequences?How do the customers feel today?
Business Protection
• Contacting key customers?
• Approaching key staff?
• Taking to suppliers?
What are the financial consequences?What will the... competition be doing today?
Business Protection
• Director loan accounts may need repaying?
• Outstanding salary and bonus may need to be paid
• Dividends now paid to the estate
What are the financial consequences?What will the... executors of the estate be doing?
Business Protection
• Will they reduce or withdraw credit terms?
• Can they still get creditor insurance?
What are the financial consequences?How do the... trade creditors feel today?
Business Protection
• Attitudes changing in the economic climate?
• Will, or can the bank fund cash-flow shortfall?
• Will they call in overdrafts?
• If they lend, will they require personal security?
What are the financial consequences?How does the... bank manager feel today?
Business Protection
The vicious circle of doubt
Bank
Creditors
CustomersNo cash flow
Repay loans
Replacement
Cash flow
Be your own banker
££ Cover
Business Protection
Summary of needs
• Replacement costs
• Director loan account
• Bank loans & overdraft
• Contribution to GP
£ 100,000
£ 50,000
£ 150,000
£ 150,000
£ 450,000
Need 1
Key Person
Cash Flow
Business Protection
How will they
source a
replacement?
What are the
financial
consequences?
What will happen
to the shares?
PeterFinance
Director
Cash flow
Credit control
Cost control
Forecasting
Profit testing
Loans/Capital tax
Co Sec
AnneSales and
marketing
Connections
Product & market
Negotiating
Team leader
Exports
AlanManaging
Director
Vision
Direction
Leadership
Board cohesion
Bank confidence
The three key questions
Business Protection
The key questions
• Who gets the shares?
– What’s in the will?
• Spouse / partner?
– How will they generate income?
• Children?
– How old?
• Majority or minority shares?
Business Protection
The majority shareholder
The majority shareholder
• No power
• No market
• No guarantee of income
The estate has no problem!
Business Protection
Articles of association
• Pre-emption rights?
- Must offer to existing shareholders first?
• Value clause
- - How will the shares be valued?
- - Problems of post death valuation
But - Where does the money come from?Both the Estate and the company may have the problem
Business Protection
The majority shareholder
• Run or work in the company?
• Appoint / remove directors?
• Strip retained profit out of the business?
• Sell the shares
- To who?
- At what price?
- Check articles!
Business Protection
Fair valueFor Estate In Trust or
Company Share
Purchase?
The business ‘Will’
Life / CIC
Policy
Cross
Option
Agreement
Business Protection
Business trust
• Highly flexible
• Suits most businesses
• IHT / CGT issues if not set up
correctly
• More expensive as premiums are a personal expense
Company share Purchase
• Cheaper – company pays – no tax charge
• Easy to set up
• Complications on purchase
• Only suits certain companies
• Purchase paid from distributable profit
Method
Business Protection
BPR applies
Spousal bypass – the problem
Shares to Spouse IHT Free
Cash in spouse’sEstate fully exposed to IHT
Business Protection
Avoiding IHT?
WillTrust
Cash loansto spouses
SharesDIS benefitsIl Rate Band?
To trust IHT free
Business Protection
Shares soldShares sold
Avoiding IHT?
WillTrust
SharesDIS benefitsIl Rate Band?
To trust IHT free
Business Protection
Shares soldShares sold
What are the financial consequences?
WillTrust
Cash loansto spouses
Loans repaid on death reducingestate
Business Protection
WillTrust
Avoiding IHT?
Business Protection
• Replacement costs
• Director loan account
• Bank loans & overdraft
• Contribution to GP
• Value of shares
£ 100,000
£ 50,000
£ 150,000
£ 150,000
£ 450,000
£ 250,000
Need 1
Key Person
Cash Flow
Summary of needs
Need 3
Share
Protection
Business Protection
Summary of needs
Possible total
• Replacement costs
• Director loan account
• Bank loans & overdraft
• Contribution to GP
• Value of shares
£ 100,000
£ 50,000
£ 150,000
£ 150,000
£ 450,000
£ 250,000
£700,000
Need 1
Key Person
Cash Flow
Need 3
Share
Protection
Business Protection
Business protection specialists
• Large sums assured
• Comprehensive CIC covers
• Pegasus WOL – long term care (LTC) option
• Highly flexible menu based plans
• Bespoke business increase options (GIO’s)
• Specialist technical and sales support teams
• Specialist underwriters
• Web support / calculators
• Master class training
Business Protection
What creates the profit?
‘People, not machines, are the real source of profits in any business.’
‘Take away my factories, my plants, take away my railroads, my ships, my
transportation, take away my money; strip me of all these – but leave me
my people and in two or three years I will have them all again.’
Andrew Carnegie
Why recommend Scottish Provident and how to sell more protection
Are your clients indulgingin unprotected success?
Business Protection
The information in this presentation is based on Scottish Provident's present understanding of current law and practice and does not constitute legal and/or taxation advice. You may wish to use all or some of the slides from this presentation. But please keep in mind that if you use or adapt any of these slides for your own presentation, you must make sure it’s compliant with the appropriate regulations and incorporate any appropriate risk warnings. Scottish Provident does not accept liability for any adapted wording you may use in this presentation.
SCPR5912 MAR10
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