protection that keeps your clients in business presented by: your name, position date (month, year)

Protection that keeps your clients in business

Protection that keeps your clients in business

Presented by: Your name, position

Date (month, year)

Protection that keeps your clients in business

April 2007 £12.75

Co value £500m

October 2007 £0.85p(shares suspended)

Administrators called in in April 2008

Once a rising star of the stock market, Carter & Carter's fortunes have deteriorated rapidly since the helicopter crash on May 2 in which

Phillip Carter died

Source: guardian.co.uk Monday 10 March 2008

Share Price

The effect of losing a key person

2

Protection that keeps your clients in business

What went wrong?

CreditorConfidence

3

Protection that keeps your clients in business

Solicitors Bank

Other consequences

SolicitorsSolicitors

AuditorsAuditors

IFAsIFAs

BankBank

ClientsClients

CreditorsCreditors

4

Protection that keeps your clients in business

5

Owner / managed business

• No ‘substitutes bench’

• Limited market for shares.

Protection that keeps your clients in business

The owner managed businessFour key business functions

• Leadership

• Financial control

• Production

• Sales.

6

Protection that keeps your clients in business

FrankTechnical

Director

R&D

Quality control

Buying

Projects

Contracts

Team leader

PeterFinanceDirector

Cash flowCredit controlCost controlForecastingProfit testing

Loans/Capital taxCompany Secretary

AnneSales and

Marketing

Connections

Product & market

Negotiating

Team leader

Exports

AlanManaging

Director

Vision

Direction

Leadership

Board cohesion

Bank confidence

Silos – Custom Control Systems Ltd

7

Protection that keeps your clients in business

PeterFinanceDirector

Cash flowCredit controlCost controlForecastingProfit testing

Loans/Capital taxCompany Secretary

AnneSales and

Marketing

Connections

Product & market

Negotiating

Team leader

Exports

AlanManaging

Director

Vision

Direction

Leadership

Board cohesion

Bank confidence

Silos – Custom Control Systems Ltd

8

Protection that keeps your clients in business

How will they

source a

replacement?

What are the

financial

consequences?

What will happen

to the shares?

PeterFinanceDirector

Cash flowCredit controlCost controlForecastingProfit testing

Loans/Capital taxCompany Secretary

AnneSales and

Marketing

Connections

Product & market

Negotiating

Team leader

Exports

AlanManaging

Director

Vision

Direction

Leadership

Board cohesion

Bank confidence

Silos – Custom Control Systems Ltd

9

Three key questions

Protection that keeps your clients in business

How will they

source a

replacement?

PeterFinanceDirector

Cash flowCredit controlCost controlForecastingProfit testing

Loans/Capital taxCompany Secretary

AnneSales and

Marketing

Connections

Product & market

Negotiating

Team leader

Exports

AlanManaging

Director

Vision

Direction

Leadership

Board cohesion

Bank confidence

Silos – Custom Control Systems LtdFirst key question

10

Protection that keeps your clients in business

• Time Months ?

• Head hunter costs £ ?

• Share option buy out £ ?

• Relocation costs £ ?

How will they source the right replacement?Consider the potential time and money involved:

11

Protection that keeps your clients in business

How will they source the right replacement?

Friends Provident paid £370,000 for Trevor Matthews to move home.Matthews received the ‘relocation allowance’ for his move fromEdinburgh to Dorking, Surrey. A spokesman for Friends Provident says:

‘Relocation costs are a standard part of most employee contractswhere 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

12

Protection that keeps your clients in business

How will they

source a

replacement?

What are the

financial

consequences?

PeterFinanceDirector

Cash flowCredit controlCost controlForecastingProfit testing

Loans/Capital taxCompany Secretary

AnneSales and

Marketing

Connections

Product & market

Negotiating

Team leader

Exports

AlanManaging

Director

Vision

Direction

Leadership

Board cohesion

Bank confidence

The second key question

13

Protection that keeps your clients in business

• Will they remain loyal?

• What happens if quality and service levels fall?

• 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?

14

Protection that keeps your clients in business

• Contacting key customers?

• Approaching key staff?

• Talking to suppliers?

• Possibly looking to a takeover?

What are the financial consequences?What will the competition be doing today?

15

Protection that keeps your clients in business

• Director loan accounts may need repaying?

• Outstanding salary and bonus may need to be paid?

• Dividends now paid to the estate?

• SIPP / SSAS Return of Fund might need to be paid.

What are the financial consequences?What will the executors of the estate be doing?

16

Protection that keeps your clients in business

• 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?

17

Protection that keeps your clients in business

• 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?

– In particular second charges

– could these charges be retrospective on existing loans?

What are the financial consequences?How does the bank manager feel today?

18

Protection that keeps your clients in business

The vicious circle of doubt

Bank

Creditors

CustomersNo cash flow

Repay loans

Replacement

cash flow

Be your own banker

££ Cover

19

Protection that keeps your clients in business

Summary of needs

• Replacement costs

• Director loan account

• Bank loans & overdraft

• Contribution to Gross Profit

£ 100,000

£ 50,000

£ 150,000

£ 150,000

£ 450,000

Need 1

Key Person

Cash Flow

Costs quoted are estimated for illustration purposes 20

Protection that keeps your clients in business

How will they

source a

replacement?

What are the

financial

consequences?

What will happen

to the shares?

PeterFinanceDirector

Cash flowCredit controlCost controlForecastingProfit testing

Loans/Capital taxCompany Secretary

AnneSales and

Marketing

Connections

Product & market

Negotiating

Team leader

Exports

AlanManaging

Director

Vision

Direction

Leadership

Board cohesion

Bank confidence

The third key question

21

Protection that keeps your clients in business

What will happen to the shares?

• Who gets the shares?

– What is in the will?

• Spouse / partner?

– How will they generate income?

• Children?

– How old?

• Majority or minority shares?

22

Protection that keeps your clients in business

The minority shareholder

• No power

• No market

• No guarantee of income

The estate has the problem!

23

Protection that keeps your clients in business

The majority shareholder

• Run or work in the company?

• Appoint / remove directors?

• Strip retained profit out of the business?

• Sell the shares

- To whom?

- At what price?

- Check articles!

24

Protection that keeps your clients in business

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

25

Protection that keeps your clients in business

Fair valueFor Estate

The business ‘will’

Life / CIC

Policy

Cross

Option

Agreement

26

Protection that keeps your clients in business

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 2

Share

Protection

*Assumes company valued at £1m – one quarter share 27

Protection that keeps your clients in business

What creates the profit?

"The most essential human tasks: sensing, judging, creating, and

building relationships...means a great deal of a company's value lies

between the ears of the employees"

Thomas A. Stewart - Intellectual Capital: The New Wealth of Organisations, 1997

28

If you want to find out more, contact:

Name Contact telephone number

Thank you.

Scottish Provident is a division of the Royal London Group, which consists of The Royal London Mutual Insurance Society Limited and its subsidiaries. The Royal London Mutual Insurance Society Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. The firm is on the Financial Services Register, registration number 117672. It provides life assurance and pensions and is a member of the Association of British Insurers and the Association of Financial Mutuals. Registered in England and Wales number 99064. Registered office: 55 Gracechurch Street, London, EC3V 0RL.SCPR5912 JUL15

Important information