1. Business protection The cost of unprotected success

2. A true story C&C folded year after founder’s crash death Training group Carter & Carter has gone to the wall less than a year after it’s founder was killed in a helicopter crash…… ….C&C has struggled to cope since his death Share price April 2007 £12.75 Co value £500m October 2007 85p (shares suspended) Administrators went in in April 08

3. Managing Director / CEO Direction & vision Entrepreneurship Boardroom cohesion Creditor confidence

4. SME Owner / Managed Business Who needs it? No “substitutes bench” Limited market for shares

5. What are we going to talk about? We really couldn’t do without him…. Finding a replacement Dealing with the family Understanding banks, creditors and customers Retaining control of the business Providing fair value for the estate

6. Silos – typical SME Vision Direction Leadership Board cohesion Bank confidence Alan Managing Director Connections Product and market Negotiating Team leader Exports Anne Sales and marketing Research and development Quality control Buying Projects Team leader Frank Technical Director

7. Losing Frank – the fallout Vision Direction Leadership Board cohesion Bank confidence Alan Managing Director Connections Product and market Negotiating Team leader Exports Anne Sales and marketing How will they source a replacement? How will they support the family? What will happen to the shares? What are the financial consequences ?

8. How quickly can they source a replacement? Notice period Head hunter costs Relocation costs Share option buy out Package: –Car lease –Salary / pension –Bonus 3 months £15,000 £30,000 £20,000 £5,000 £60,000 £20,000 £150,000

9. Losing Frank – the fallout Vision Direction Leadership Board cohesion Bank confidence Alan Managing Director Connections Product and market Negotiating Team leader Exports Anne Sales and marketing How will they source a replacement? How will they support the family? What will happen to the shares? What are the financial consequences?

10. How will they support the family? Emotional & practical Bereavement counselling Answer questions and give advice Discuss treatment plans Provide practical support for the family Financial support Can the company afford financial help?

11. Losing Frank – the fallout Vision Direction Leadership Board cohesion Bank confidence Alan Managing Director Connections Product and market Negotiating Team leader Exports Anne Sales and marketing How will they source a replacement? How will they support the family? What will happen to the shares? What are the financial consequences?

12. What will the ……. competition be doing today? Contacting key customers? Approaching key staff? Fuelling rumours? Approaching the estate? Financial consequences

13. How will the ……. staff feel today? Worried? Loss of morale? Looking for other opportunities? Be open to an approach from competitors? Financial consequences

14. How do the……. customers feel today? Will they remain loyal? What happens if quality and service levels fall? What will be the effect on turnover? How will the company meet its fixed costs? Financial consequences

15. How does the……. bank manager feel today ? Attitudes changing in the credit crunch Banks looking to re-build capital Will, or can the bank fund cash-flow shortfall? Will they call in overdrafts? If they lend, will they require personal security? Financial consequences

16. How do ……. trade creditors feel today? Will they reduce or withdraw credit terms? Can they still get creditor insurance? Could they cease supplies? Financial consequences

17. How do ……. trade debtors feel today? Could be ex-customers If so are they likely to pay quickly? If not how will this affect cash flow? Financial consequences

18. What will ……. the executors of the estate be doing? Director loan accounts may need repaying Outstanding salary and bonus needs to be paid. Dividends may need paying Financial consequences

19. The vicious circle of doubt CREDITORS BANK DEBTORS ££ COVER No cash flow

20. Vision Direction Leadership Board cohesion Bank confidence Alan Managing Director Connections Product and market Negotiating Team leader Exports Anne Sales and marketing How will they source a replacement? How will they support the family? What will happen to the shares? What are the financial consequences? Losing Frank – The Fallout

21. Who inherits the shares? Spouse / partner? –How will they convert the shares to cash? Children? –If under 18 who represents them? –If 18+ but lacks maturity? Majority or minority

22. The minority shareholder What powers does the estate have? Little or no power No market No guarantee of income

23. The majority shareholder What powers does the estate have? Appoint themselves as directors Remove other directors Control dividend strategy Sell control to a third party –Subject to the articles

24. Articles of Association – best sales aid? Pre – emption rights? –Must offer to existing shareholders first Value clause –How will the shares be valued? BUT – Where does the money come from?

25. Succession planning Without a properly funded “business will” you cannot be certain there will be: 1.CONTROL for the remaining shareholders 2.FAIR VALUE for the estate

26. Solutions The cost of unprotected success

27. Solution 1 Insures Key Person Solution In the event of death, critical illness & disability Recruit replacement Replace lost profit Repays loans Helps family Cash

28. Helping Hand Working Transitions – Helping Hand –Temporary replacement in 48 hrs –Assistance with sourcing permanent replacement –Legal assistance Red Arc – Helping Hand –Nurse advisor –Bereavement counselling –Additional medical assistance for critical illness

29. Cross option agreement Solution 2 Business trust Tax free benefit In the event of death Fair value control Shares Shareholder protection solution

30. Solution 3 Insures Dependant’s solutions In the event of death cash discretionary trust dependants

31. Group life cover The normal employee group scheme Not available on single life basis Single life Relevant life policies (RLPs) ExceptedNon-excepted RegisteredNon registered Single Life Death in Service Unattractive tax regime Bright grey – only company offering on a stand alone basis

32. Relevant life policies Cost is paid by the employer No tax or NIC charge on the employee Possible tax relief on premiums Benefits paid (usually) tax free under a discretionary trust Does not form part of pension lifetime or annual allowance

33. How much tax is saved? Payment Employees NIC @ 1% Income Tax @ 40% Employers NIC @ 12.8% Total gross cost £1,000 17 678 217 £1,912 Allowing for Corporation Tax on BIK / NICs 21% CT rate gives net cost of 29.75% CT rate gives net cost of 28.0% CT rate gives net cost of £1,510 1,343 1,377 Assumes cost of life cover is £1,000 for a 40% tax paying director, but treated as a benefit in kind for income tax and NICs. Tax Rates applicable 2008/9

34. How much cover ? Replacement costs£ 150,000 Director loan account£ 50,000 Bank loans & overdraft£ 200,000 Contribution to gross profit£ 250,000 Value of shares£ 250,000 4 x remuneration DIS£ 300,000 Solution 1 Key Person cover Solution 2 Share Protection Solution 3 Death in Service Possible total £ 1,200,000

35. Rewards for you? Average AP per cover£1,250 Average covers per business 4 Total AP per business£5,000 Your Earnings ??£8,000+

36. Rewards for you? And….

37. Rewards for you? Bright Grey has just increased commission for Bankhall members by 2.5% LAUTRO for full earnings period

38. Summary 3 simple solutions will fit most businesses –Only the minority of cases get complicated Bright Grey specialises in business protection –Specialist sales team –Specialist admin team –Specialist underwriters (contactable) –Specialist products –Price match for large cases (£200+ per month) Professional training from experts –Masterclasses being run throughout the UK –One size-does-not-fit-all –Tailored solutions to different needs

39. Are your clients indulging in unprotected success?