Protecting the value of your business in Singapore

A Business Will -- have you made one?

I ask this question frequently when meeting businesses in Singapore, be they a Partnership, LLP or Pte Ltd. Often I am met with silence or moreover an awkward pause.

I normally interject at this point by advising it is a Business Protection solution, which will either protect profits or cover liabilities. Business liabilities such as Business Loans which have possibly personal guarantees attaching, or Loan Accounts or Overdrafts need to be covered.

So ask the question, has your business borrowed money from the bank or from partner(s)? Or if your business has an overdraft, the death of a partner(s) or Director(s) could cause a lender to call in the loan or overdraft. How then would this be covered, out of reserves or cash flow? Either way this could be financially difficult for any business.

Simarly, while Co-Directors provide the foundation of a business, others may make a vital contribution to its success, so if such a person dies or has a critical illness, how would your business's ability to trade profitably now and in the future be affected?

Such a loss can cause far-reaching problems for a business, including loss of relationships, as people like to deal with people they know and losing a key person can mean losing customers to your competitors and may lead to lower profits. Loss of expertise and the cost of recruitment could affect the profitability of any business.

Partners, Directors, and Key Person(s) in your business are all driving forces and foundations for its success. So what would happen if one of them was no longer there? Imagine if the shares of one of your partners ended up in the hands of someone you don't know, and who does not know your business.

To avoid this risk, you need to establish a legal framework that gives you and the remaining partners the ability to buy out the shares of any partner who becomes critically ill or dies.

In 2014 a UOB Survey of Small Business -- noted from 200 businesses with annual turnovers of up to $20 million in trading, manufacturing, logistics, IT, and professional service sectors -- found that although close to 90% of these companies said they would lose revenue and face cash flow problems if they lose their key person, only half are insured to protect their businesses against the loss of that person.

Mervyn Koh, UOB Head of Business Banking for Singapore, said in a statement, "The fact remains that many small businesses rely on a few core people to keep the company going... (they) tend to focus more on building their business rather than protecting it by managing risks. The lack of awareness among small businesses to safeguard their company against risks such as the loss of their key person makes them vulnerable to financial failure."

However while a legal framework can ensure you have the ability to buy out the shares, it cannot ensure you have the money to exercise that right. This is where Business Protection comes in.