Running a business is nothing less than a challenge. As small businesses and start-ups across the country are suffering to attain financial stability, it is highly advised for businesses to secure funds beforehand.
There are several ways a business can secure funds and most of them usually opt to go the traditional way – securing business loans from traditional British banks. However, with increasing popularity, alternative finance industry is stealing the spotlight and the way people view business loans.
Today, 76 per cent of businesses across the UK are financially stable because of the alternative finance industry. With their professionals and expertise in the field of finance, they offer the most suitable funding option for your financial situation. The funding options that you can choose from include:
- Cash Flow Finance
- Invoice Finance
- Property Finance
- Overdraft ID
If you are not comfortable with using alternative financing to secure funds, business owner can opt to take on partners. There are several reasons why a company would decide to take this step. But apart from the advantages, there are few crucial things business owners need to consider before entering into a partnership, such as
- What legal bases do you need to cover?
- How can your life insurance policy protect you, your company and your family?
What Does A Business Partnership Looks Like?
Some of the business owners agree upon a partnership because they are in a desperate need of someone complementing their personal strengths. For instance, if you are good at managing the marketing and branding sector of the company, the other person could be an expert in managing finances and IT.
There are even time when experts in same field come together to serve more clients as a team. While in other agreements, one partner is solely a passive and responsible for funding while the other partner is active and manages the entire company.
It is ultimately important to have a structured partnership. There should be a written agreement between the partners that covers all the financial technicalities such as
- Ownership percentage shared
- Tenure of the partnership
- How and when the business is to be valued
The agreement should also include events that may dissolve the partnerships such as death of either of the partners, disability, long-term sickness, early retirement etc.
How Does Life Insurance Help?
Life insurance policy plays a vital role in funding of the partnership agreement. When one of the business partners die, their spouse ends up with the estate and the shares of the company.
If the surviving partner wants to take over the entire business, they have to buy the shares. Having a life insurance policy will provide you the exact amount of money you need to buy the shares. In fact, it is the most economical way one can take care of things compared to other options such as taking cash out of the business, selling assets or borrowing from the bank.
However, there are three things to consider before you use your life insurance policy to fund your partnership agreement.
1: Finalise Your Partnership Agreement
First thing first, it is important to get the written agreement finalised before you get your life insurance policy approved. It is the worst thing to get your life insurance approved at a high rate, only to delay paying for the policy because the legal work of your agreement it yet to be completed. So, until the legal work is completed, you will not have coverage and something disastrous could either raise the price significantly or disqualify you altogether.
2: The Cost of Life Insurance Will Vary
It is necessary to know that not everyone qualifies for the same amount. Each individual will represent different risk profiles to the insurance company. Many factors such as gender, smoking status, health history and more affect the amount given to an individual. Thus, the cost of life insurance is bound to vary for each partner.
3: Explore Your Policy Ownership Options
Most importantly, business partners should research their options for policy ownership. There are instances where your business should be the owner and the beneficiary of the policies, while in other cases, the partners should own policies on one another. Seek advice from your lawyer to make sure that the policies are issued correctly and fit your requirements.
Life insurance policies are essential for business owners. They cover you, your business, your spouse and your family members. They act as a game changer if an unexpected event occurs. Make you have your life insurance taken today.