Protecting your current and future income
Have you been to the mall recently? I am sure you’ve noticed that the Christmas trees are out again. The festive season is almost upon us, and while we plan and prepare to have several colours with our loved ones, it is also in good spirits to have the future in mind. As individuals, we may experience the loss of a loved one, relative, breadwinner, etc and as a business entity, we may find ourselves with one less partner or a key individual. Death is inevitable but and it is important that we plan and prepare accordingly. Therefore, it is important to put measures in place to protect your current and future income.
From a business point of view, it is always important to do some introspection regarding the future of the business. Be able to answer questions such as: what would happen to the business if so and so had to pass away, do you have a good understanding of your ownership model, would there be any conflicting priorities and future plans for the business between you, other business partners and the deceased’s family? These are critical points to consider and find solutions to.
Protecting your current and future income
Below are some measures you can put in place to protect your income as a business:
- Key man insurance: key man insurance protects the business from financial consequences of a key individual passing away, becoming disabled or contracting a critical disease. The most important asset in any business is its people. The loss of a key person constitutes a risk for the business. Insurance can help businesses cope with the loss of a key person in their organisation, such as a manager or staff member. Loss of income due to specific knowledge, additional costs incurred to recruit and train a replacement, and loss of goodwill can put pressure on an organisation's finances.
- Another option is taking out a buy and sell agreement: when a co-owner in a business dies, the affected owner's estate can be left severely exposed. The remaining owners might not have the resources to purchase the shares from the estate. The spouse may not want to participate in the business which means that he/she is left at the mercy of the existing owners. A buy-and-sell agreement is an agreement between two or more co-owners of a business. The purpose of the agreement is to provide the surviving co-owner with cash to purchase the interest of a deceased member of the family who owns shares in the business.
Protecting your current and future income
Individuals also have options available to them on how to protect their income:
- Having an emergency fund: Savings are a good back up for short-term or relatively minor setbacks. You could keep these funds in an easily-accessible savings or cash account with the best interest rates. Saving is a way to insure yourself against setbacks, such as losing your income or unforeseen emergencies.
- Income protection policy: Income Protection insurance is intended to replace a portion of your monthly earnings if you are unable to work for an extended period of time due to illness or injury. This may cover your day-to-day living expenses, allowing you to concentrate on your recovery.
- Boost your current earnings: Increasing your regular earnings may improve your current financial situation and make it easier to save. You may be providing financial protection against income loss or unforeseen emergencies by doing so. It may even allow you to pursue your passion as a secondary source of income. Some people supplement their income by working part-time as a tutor or coach, while others create and sell arts and crafts at local markets or online. With so many options available, there's bound to be something that suits you.
As the saying goes, ‘uncertainty is the only certainty!’ As a result, it's always a good idea to contact a financial planner, who is well-positioned to help manage potential risks and build a business continuity plan to financially future-proof your business. It is now time to take stock. Is your last will and testament updated, do you have key-man insurance and a business succession plan in place. Does your risk plan have disability and accidental injury to protect your ability to earn an income?
Protecting your current and future income
