protection that keeps your clients in business presented by: your name, position date (month, year)
TRANSCRIPT
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
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Protection that keeps your clients in business
What went wrong?
CreditorConfidence
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Protection that keeps your clients in business
Solicitors Bank
Other consequences
SolicitorsSolicitors
AuditorsAuditors
IFAsIFAs
BankBank
ClientsClients
CreditorsCreditors
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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.
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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
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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
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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
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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
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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:
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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
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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
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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?
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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?
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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?
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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?
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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?
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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
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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
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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?
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Protection that keeps your clients in business
The minority shareholder
• No power
• No market
• No guarantee of income
The estate has the problem!
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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!
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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
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Protection that keeps your clients in business
Fair valueFor Estate
The business ‘will’
Life / CIC
Policy
Cross
Option
Agreement
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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
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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