What are the odds of needing to claim on your personal insurance when you're in business?
The more people you're in business with the more the statistical realities of life increase and can push back against our hope for easy and risk-free business life.
Hard Fact of Business: The more business partners you have, the more statistically heightened risks you need to manage.
Read in this article
- How Life's Statical Risks are Magnified for Small Business Owners
- We all face the statistical risks of The Numbers of Business
- What does this mean for business owners and their small business families?
- What you can do today to plan for a more predictable tomorrow?
- Being prepared to bounce back
- Where to start
- Three Key videos on understanding risks and using insurance as part of your insurance strategy
- FAQ's
- My business partner and I have a simple handshake agreement on the value of our shares. Isn't that enough?
- You mention insurance. Isn't that just an extra expense when we're trying to keep costs down?
- How often should we really be valuing our business? Doing it every year sounds excessive.
- My business is my identity. Why should I be thinking about an exit strategy when I have no plans to leave?
- How does my business succession plan affect my personal estate plan? Do they need to align?
How Life's Statical Risks are Magnified for Small Business Owners
The more business partners you have, the more you increase the risk of one of them will;
- either unexpectedly die, or
- become totally and permanently disabled
and as a result, you and your business will be directly affected.
In fact, most business owners would have thought the opposite would be true; that they are less likely to have an event like this occur, and in fact were decreasing their risks exposure by taking on more business partners in their business.
Pro Insight: The problem with statistical risks is that because they are statistical and not personal, they are unavoidable - all we can do is better manage them and that is where good risk advice can help you face, your business partners and your families face tomorrows protected.
We all face the statistical risks of The Numbers of Business
Because these are statistical risks we all face, they cannot be avoided, merely managed with insurance. This also means they cannot be ignored.
What does this mean for business owners and their small business families?
Any small business owner will tell you despite many good intentions and well-laid plans, life's reality is family life and business life responsibilities overlap.
- Whether its competition for time and resources or clarity around planning and direction, competing expectations and responsibilities, these are regular stressors business owners face
- Understanding how business and family risks can uncomfortably intersect can often go unnoticed until hard times arrive.
Many small business owners cite one of the primary reasons for their getting into business was to provide more time, flexibility and resources for their families so it makes sense that part of business planning is family and business protection.
What you can do today to plan for a more predictable tomorrow?
Get to know The Cost to Care for different types of cancer diagnoses.
- Ask us for a sample quote on $100,000 of Crisis/Trauma insurance cover so you know what's possible
- Talk with your partner about how you would want to approach a major health issue together.
- Talk with your parents about the health history of your immediate family
- Plan to live a bigger life.
Being prepared to bounce back
Holding a significant and uninsured risk is not an effective business plan — and its clearly a liability to any supply chain your business is part of and to those who reply upon your business (and those who may think you already have a backup plan for this in place already).
Where to start
Business owners need a Company Power of Attorney and an insurance strategy to protect them (and their families) from the business.
Call us for a confidential chat about your needs.
Three Key videos on understanding risks and using insurance as part of your insurance strategy
When should people use a life insurance policy? (3 mins)
What is the chance of needing to claim on a life insurance policy? (3.40 mins)
What are the possible outcomes for a life insurance application? (1 min)
FAQ's
Your Increases Busienss Risks and Increases Businss Partners Questions, Answered. Here’s a quick summary of what you need to know about How the Numbers of Business risk increases with the number of business partners.
My business partner and I have a simple handshake agreement on the value of our shares. Isn't that enough?
It's a common approach, especially when you trust each other implicitly, but honestly, it's a recipe for disaster. A handshake agreement is based on a point in time and on goodwill, both of which can change in an instant. What happens if one of you suffers a serious illness, or if a divorce forces a sale? Suddenly, that friendly number is put under immense pressure, and the ATO or a Family Court won't care about a handshake. A formal, regularly updated valuation provides a number that is objective, defensible, and can stand up to scrutiny when it matters most, protecting both your business and your family.
You mention insurance. Isn't that just an extra expense when we're trying to keep costs down?
I understand why it can feel like just another bill, but you have to reframe your thinking. Business succession insurance isn't an expense; it's a funding mechanism. Without it, if you or your partner were to pass away, the surviving partner is suddenly faced with an enormous problem: finding a huge lump sum of cash to buy out the deceased's family. This can cripple or bankrupt a healthy business. Insurance provides the capital to make that transaction seamless, ensuring the business continues and the family receives the fair value they're owed. It's the most cost-effective way to solve a multi-million dollar problem.
How often should we really be valuing our business? Doing it every year sounds excessive.
For a formal, in-depth valuation, you might not need to do it annually, but you certainly shouldn't be leaving it for a decade. A good rhythm for many businesses is to get a formal valuation done every three years, with a less formal review each year to see if any major factors have changed. The key is to treat your business valuation like a regular health check-up. It ensures your Buy-Sell Agreement is never wildly out of date and that your insurance coverage actually matches the real worth of the business.
My business is my identity. Why should I be thinking about an exit strategy when I have no plans to leave?
That's precisely why you need a plan. Because your business is so intertwined with who you are, an unplanned exit—due to death, disability, or dispute—would be catastrophic not just financially, but emotionally for everyone involved. An exit strategy isn't a plan to quit; it's a plan for the unexpected. It’s a professional process that respects your life's work by ensuring it can survive without you at the helm, protecting your staff, your partners, and your family from the chaos of a sudden departure.
How does my business succession plan affect my personal estate plan? Do they need to align?
They absolutely must align; thinking of them as separate is a critical mistake. Your shares in the business are likely the most significant asset in your personal estate. Your succession plan dictates how and for how much those shares will be converted into cash upon your death. That cash then flows into your estate and is distributed according to your Will. If your succession plan is weak or unfunded, your estate may not receive the value you were counting on, which can completely derail your plans for providing for your family. They are two sides of the same coin.
Call us today on 1300 137 403 or email us here for a no-obligation private chat about your situation.
Drew Browne is a specialty Financial Risk Advisor working with Small Business Owners & their Families, Dual Income Professional Couples, and diverse families. He's an award-winning writer, speaker, financial adviser and business strategy mentor. His business Sapience Financial Group is committed to using business solutions for good in the community. In 2015 he was certified as a B Corp., and in 2017 was recognised in the inaugural Australian National Businesses of Tomorrow Awards. Today he advises Small Business Owners and their families, on how to protect themselves, from their businesses. He writes for successful Small Business Owners and Industry publications. You can read his Modern Small Business Leadership Blog here. You can connect with him on LinkedIn. Any information provided is general advice only and we have not considered your personal circumstances. Before making any decision on the basis of this advice you should consider if the advice is appropriate for you based on your particular circumstance.
