No one’s getting paid! This is quite a dramatic title, and in the current climate could apply to many things, but in this instance it is to highlight a growing area of concern for owner managed businesses.
According to the Department for Business, Innovation & Skills 99.9% of all private sector business at the start of 2015 were small or medium sized businesses (SMEs). These SMEs accounted for 60% of all private sector employment in the UK with a combined annual turnover of £1.8 trillion. Of the overall business population 62% are sole proprietorships, 8% ordinary partnerships and 30% limited liability companies.
This just illustrates the number of extremely hard working entrepreneurs we have in this country. However all the hard work that is put into the business does not leave much time for anything else. This can include considering the impact on the business if the owners were not there.
Many business owners will have considered the effect of their death on their business, possibly putting key man insurance in place, making sure there are relevant provisions in their Will and so on. However an often missed issue is what would happen if you were unable to continue to run your business during your lifetime.
It is a sad fact that there are many circumstances which could result in mental incapacity. This could happen gradually, such as with the onset of dementia which can occur at any age, or suddenly, as with a stroke or an accident. In this situation is there anyone else authorised to access the business bank account and pay staff and suppliers? Can essential resolutions be passed without your voting rights being exercised? In short, can the business survive in your long term absence?
Your pension provisions may also be wrapped up in your business, but again if there isn’t anyone authorised to deal with your business if you are unable to, what will the impact be on your future income needs.
Most people are aware of the need to have a Financial Affairs Lasting Power of Attorney (LPA) in place to ensure that there is someone who is legally able to deal with your financial dealings if you are unable to do so yourself.
However, is just one Financial Affairs LPA enough? Many people will want their spouse and possibly their children or other close family members to deal with their personal financial affairs if they are unable to do so. They will trust them to act in their best interests at all times. However, are these people the best people to also have the authority to run your business? Would your business partners or co-shareholders be happy to have potentially inexperienced people having such an important say in the business? Often the answer is no.
For such an important issue it is perhaps surprising that people are not aware that more than one Financial Affairs LPA can be prepared to deal with your different financial aspects. You can have one authorising your attorneys to deal solely with your business affairs and one purely for use with your personal financial affairs. You can even go as far as to have one LPA for each business you have.
Planning for the future of your business is an essential part of running a successful business. However, this area is one that commonly gets missed when trying to deal with the complexities of succession planning and the day to day running of your business. If you want to have a say in who will run your business in your absence, and potentially ensure that there will be a business to run, do not put off planning for the future any longer.
Sarah Mansbridge is a member of the firm’s Private Client team based in our Exeter office. If you would like to discuss any of these items in more detail please do not hesitate to contact Sarah, telephone 01392 210700 or email private.client.exeter@stephens-scown.co.uk .