Minimising Risk to your Business

The survival and success of your business is critical throughout the entire life cycle, as it is likely to be your main source of income and may play a big part in whether you meet your retirement goals.

Out of all reported corporate insolvencies in 2015/16 ¹:

• 79% < 20 people
• 65% debts < $500,000

The top reasons:

• inadequate cash flow or high cash use (46%);
• poor strategic management (46%);
• and poor financial control, including lack of financial records (34%).

Protecting your interests

To give your business its best chance to survive over the long term, and succeed, you need to get smart about protection. No matter how small or large your business,or how it is structured, each business will face a number of risks. These risks could relate to the economy, competition, or changing consumer behavior and can be hard to control. However, one type of risk you can have a degree of control over is people risk – that is, the financial impact to your business if a key person dies, becomes disabled or suffers a specific medical condition.

Moreover, protection is not just about guarding the financial health of your business, it’s also about protecting the ownership of your business – that is, helping to achieve a smooth transfer of business ownership should one of the business owners suddenly exit due to sickness, injury
or death.

We all want to avoid thinking about illness, injury and early death. Here are some facts and figures to remind you of just how risky life can be – and why protection is an important consideration.

• A 35-year-old male has a 40% chance of suffering from an accident (12%) or illness (28%) that lasts three months or longer 2

• Around 54,000 Australians suffer a heart attack each year ᶟ

• 1 in 2 Australian men and women are expected to be diagnosed with cancer before the age of 854 ⁴

• It is estimated that more than 44,000 people died from cancer in 20155 ⁴

• Almost 2 million adults aged between 25-64 have had a disability ⁵

There are a number of different ways that you may reduce the impact that these risks can have on your business.

1. Protecting your business revenue against the permanent loss of a key person
2. Protecting your business revenue against the temporary loss of a key person
3. Protecting your business assets
4. Ensuring your business can continue to pay its fixed expenses
5. Protection for transfers of ownership
6. Protecting your household
7. Using insurance to provide a more equitable estate

Discuss them with your financial adviser today.

 

Source: BT Financial Group
1 Summary of key data from ASIC REP 507:
http://asic.gov.au/about-asic/media-centre/find-a-media-release/2016-releases/16-436mr-asic-reports-on-corporate-insolvencies-2015-16/
2 IRESS Life Risk Calculator, accessed 10 July 2017.
3 Heart Foundation, statistics (https://www.heartfoundation.org.au/about-us/what-we-do/heart-disease-in-australia
4 Cancer Council Facts and Figures (http://www.cancer.org.au/about-cancer/what-is-cancer/facts-and-figures.html)
5 AIHW 2011. Australia’s welfare 2011. Australia’s welfare no. 10. Cat. no. AUS 142. Canberra: AIHW.

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