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  • Writer's pictureJames Kingston

Contingency Planning & Tax Efficient Cover

If you are in employment, you may have access to a range of staff benefits that protect you and your family from possible future events.


This would include sickness pay, maternity and paternity leave, long-term support for critical illness, or financial assistance in the event of passing.


However when not in employment, there is a greater emphasis on us to decide what scenarios we need to think about, and what processes we have in place to mitigate those circumstances.


This is an area of admin that often gets put the bottom of the pile, as we prioritise our customer facing activities. These can be quite troubling things to think about too, which we’ll naturally want to avoid.


However, I would really encourage you to give contingency planning its due care and attention, so that we have piece of mind for our families, our businesses and ourselves.


Lets have a look at a few areas to think about.



Business continuity


Business continuity is the ability to maintain operations during periods of disruption. This is important because without robust continuity processes in place, your hard earned businesses may be at risk.


In the case of small businesses, the most likely scenario is if we fall ill in such a way that it disrupts our ability to manage the business. This might include injuries, long term illness, or mental health issues.


Business owners in some industries, operate on either a recommended or mandatory accreditation. These accreditations, overseen by a professional institution, make it a requirement to have business continuity processes and a business continuity partner in place.


But even if you don’t have this obligation placed upon you, thinking about business continuity is a vital component of contingency planning.


Put some time aside, think about, document, and share with those involved – what could happen that would impact the business? Is there someone who could step in temporarily? How would that person be remunerated? Get this thinking done and documented now, so that the plan can be implemented easily, at a difficult time. You’ll definitely thank yourself.



Succession planning


This is the process involved in deciding what will happen to your business, or share in your business, when you step away from things. But your succession plans can be drawn up to also cover unexpected scenarios.


You don’t need to wait to start this process, it’s never too early. It can provide enormous piece of mind, trigger the process of winding down or finding future buyers, and places a valuation on your business which helps with your retirement plans.


Think about what will happen to your business, will you dissolve, will your business pass on to someone, what value do you place on your business, who will need to be notified of the change in ownership. If you sell, how long would a representative have to be in place to ensure a smooth handover.


It’s a big subject, but a worthwhile exercise, and gets you to think about quite existential things which don’t always present themselves whilst at the daily coal face.



Disaster Recovery


This area of continuity planning is big in corporations, particularly those dependent on complex systems and operating models. Whole teams are set up to devise plans for what would happen in the event of natural disasters, power outages, and cyber attacks.


But it can be useful to think about in small businesses too. What would happen when the broadband goes down, one of your software providers goes under, the garage office unexpectedly floods.


Who are your alternate providers? Where could you go to work during times of disruption?





Obviously a prudent, risk-aware accountant would be a big proponent of reserves. And I am, a big fan.


Reserves are essentially a buffer. A pool of funds, over and above what we owe to our suppliers, staff and the tax man, that can be called upon in times of crisis.


These reserves can be arranged in tiers, depending on how much notice we need to provide to access them. This will also drive the returns that you’ll generate. Immediate access accounts generally offer lower rates than say fixed term deposits.


Reserves are harder to accumulate in times of tougher trading conditions, naturally. However, even if it’s modest, try and get into the habit of accruing small amounts each month to contribute to your overall contingency plan.



Insurance Policies


There are some fantastic products available in the insurance market, that offer pay-outs in the event of possible future adverse scenarios, in exchange for a monthly premium. Lets have a look at a few:


  • Income Protection: this policy offers a regular income in the event of sickness, until such time that you return to work or retire. Its typically a decent portion of your normal earnings.


  • Critical Illness: this can be taken out to complement income protection, or instead of. The distinction is that critical illness cover offers a single lump sum payment, and pays out on very specific ‘critical’ illnesses such as cancers, strokes or heart attacks


  • Life assurance: this type of policy pays out to a named beneficiary in the event of our passing.


These policies can be constructed and managed so that they are owned and paid for by your business. This means that the premiums can be offset against taxable profit without a benefit-in-kind arising.


My trusted colleague Amy Sykes is an expert in these areas, and I would be happy to introduce you if you would like me to.


  • Cyber security: typically, cover against cyber attacks will offer a pay-out equating to losses incurred as a result of data hacking and destruction, including the rebuilding of our systems and reputation.


Another trusted colleague Tom Simcox, of Simcox Brokers, offers this and other commercial cover to whom I can introduce you to if you wish.


As always, no commissions are exchanged between affiliates of this Practice. We are a community of finance professionals with whom we can refer clients with confidence.



Anyway, a few things to mull over. If you think I can help with any of this, please do drop me a line.


Best wishes.


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