Prepared for Business

Prepared for Small Business matters

In business, good ideas are simply never enough — you need to be able to systemise them, fund their implementation and even insure them just in case things don't go according to plan. But that’s often easier said than done - and nothing ever 'really' goes according to the plan.

Different businesses all have unique strengths and needs but the one common denominator to them all is that all businesses run on people and capital.

If you add to this the challenging and ever-changing environment of HR, compliance, supply chain management, market access, government bureaucracy, and economic uncertainty, is it any wonder business owners usually feel they've on an emotional and financial roller-coaster?

Why bother? — Because Small Business is Australia's biggest employer

Small business is the undisputed engine room of the Australian economy, employing over 4.7 million people and 41% of the business workforce making it Australia’s biggest employer – truly both the ‘engine room’ of the economy and the 'heart of our community'.

SMEs are the engine room of the Australian economy and usually the source of future retirement for business owners and their families.

• For reasons like this, it is important that small businesses and SME’s have the right business protection in place to protect the business *(and protect the owner's family from the business).
• It is crucial to think about what would happen to your business if a key employee were to become sick or disabled or even pass away, or if an owner or shareholder was to suffer a critical illness and had to step down, who would pay the fixed overhead costs until the business could be sold?

The impact could be devastating, but if you have the right protection in place, it could ensure the success of the business, and the family that supports it.

Recognising the power of 'Small'

The opportunity to own and build a business has long been an important part of the Australian Dream.

It seems that everyone in government is eager to declare their support for small business, but what do we mean by the word ‘small’ and why does that matter?

• Small business accounts for between 97.4% and 98.4% of all businesses, depending on whether you define a small business based on the number of employees or turnover.
• The Australian Bureau of Statistics (ABS) says a small business is a business that employs fewer than 20 people.
• The Australian Taxation Office (ATO) weighs into this space with their own alternative definition stating 'a small business is an individual, partnership, company or trust carrying on a business that is less than 2 million dollars in aggregated turnover.'

The 3 Main types of small business

The three most common business categories include;

1. Non-employing businesses (Sole Traders, Partnerships, Companies without formal employees)
2. Micro-business (employing up to 4 people including a non-employing business)
3. Employing small businesses (employing between 5 to 19 employees).

All business categories can have different structures and each structure brings its own specific risks to manage.

Understanding difference matters in small business

The heart of a small business is also essentially its most important business asset – its people. Small to medium businesses (SME's) are essentially about people and processes, and a list of risks to manage.

• Some of those risks are random; like work health and safety issues, supply chain reliability, and security.
• Other risks are statistically more predictable (and therefore manageable) like unexpected death, extended disability, and critical illness affecting the owner.

It's not personal, it's just statistical – people and business-based risks

The reality of people-based risks is they are statistically driven, not environmental. These known risks affect us all equally and they cannot be removed, only better managed.

These statistical people-based risks affect us all

These additional statistical people-based risks will also affect your SME

Different business structures create different layers of risks to manage

Each type of business contributes to the Australian economy. The network of small business suppliers are also important to the stable supply chains and long-term competitiveness of larger businesses in Australia.

Each type of small business matters for different reasons so all have very different protection needs.

• A business run by a single person with no significant family commitments may have a different risk profile to a business run by a young family relying upon a single income while caring for small children.
• Tradies running their business as a Sole Trader structure have different liabilities and risks to manage to those running through a Company/Trust/Multi-Owner structure.
• Additionally, Partnerships and family-run Partnerships have separate very specific risks to manage, as each Partner is usually jointly and severally liable for the actions (and omissions) of all the other Business Partners. This is why most families supporting a Partnership can find themselves quickly intertwined with business assets, responsibilities, and liabilities, and soon find they need a Partnership Agreement to establish business-family boundaries.

Each business ownership structure can have different individual effects on;

• your tax liabilities
• your legal responsibilities as a business owner
• your personal potential liability for business debts and actions, whether intentional or otherwise
• the different needs of asset protection and the effect of directors' guarantees, and of course
• the ongoing cost and volume of paperwork and annual reporting, just to keep the doors of a business open.

Clearly, not all small businesses are alike.

Common Small Business Structures

A Sole Trader is a self-employed person who owns and runs their business as an individual and is legally responsible for all debts and losses.

Partnerships are usually made up of two or more people who together operate a business and distribute income or losses between themselves.

A Company (or Trust) is a separate legal entity created to separate the owners from the legal responsibility of the actions of the company.

A business is only as strong as its people and their backup plans

As a business owner, you’re working to put yourself, your partners, and your staff in a position to succeed.

Where to start protecting the Core Risks of a Small Business?

• Lifestyle protection. Use Life & Disability insurances to protect yourself and your family from the financial consequences of sickness and injury.
• Succession planning. Use Life & Disability insurances to fund a buy sell arrangement between yourself and a business partner.
• Key person insurance. Take out Life & Disability insurances on a key employee whose loss would have a significant impact on your business.
• Debt protection. Use Life & Disability insurances to eliminate your personal and business debts if you die or are totally disabled.
• Business expenses. Take out Business Expense Insurance to help pay your fixed business expenses if you are totally or partially disabled.

Using Business Risks insurances as part of your business protection planning, can help provide confidence knowing if something unexpected happens to you or your partners, your business can continue to run smoothly, and you can still have a viable business to come back to, when you recover.

How we can help?

Learn more about Business Key Risks Insurances and whether your business future would look more stable and predictable with them in place.

Contact us for a confidential chat about your needs.

Related: Types of Business Risk we help manage