Cara's Story

Protecting a business partnership.

Cara is the younger partner in a Perth advertising agency. She started the company from a home office set-up in 2006 and now has 6 full-time staff and 2 part-timers.

Three years ago, after landing several large accounts, the agency moved to a studio office in West Perth where it continues to grow.

We asked Cara and John how their business would continue if it lost one of its main income producers.

Revenue rose from $300K a year to $1.2 million during this 3 year growth period. But despite this, profits remained minimal. The additional revenue was taken up by a significant spend on marketing, the cost of support staff and the new office premises.

What’s a business worth ?

Cara - and her business partner John,– generate a total of $500,000 in revenue for their business. There are no outstanding loans to any financial institution or third party.

Although profit is slight, Cara and John have been through the pains of establishing a business from scratch. They agreed the business profile and goodwill, as well as some of the contracts the agency has picked up, means the value of the business is $600,000 shared equally between the two owners.

TWD’s Strategy
Ownership Protection (Buy/Sell Agreement Insurance)

We asked Cara the question; if John died, what would be the consequences? Would a bank lend to a business where one partner had died - and where there’s uncertainty regarding the business’ continuation? If Cara can’t borrow the money, could she sell the business? Would it be worth the same value after John’s death? Did she want to be in business with John’s wife and family who had no knowledge of running an advertising business?

We also asked the same of John.

The answer was to recommend Cara and John took out a $300,000 Life & TPD (total and permanent disability) Insurance Policy.

In the event of either partner’s death (or TPD), the other partner would inherit their share of the business and receive a $300,000 payout. And there would be minimal interruption to the running of the business.

Protecting Revenue with Key Man Cover

We asked Cara and John how their business would continue if it lost one of its main income producers. If one of them was unable to work for 12 months due to illness, how could the business survive?

With little profit and high fixed overheads, we saw that there was a significant risk to the business if one of the two partners was unable to work due to major illness, disablement or death.

We recommended that the business took out a ‘Key Man’ Policy on both Cara and John to protect the $500K revenue they produce. A Life, TPD and Critical Illness Insurance Policy now protects the business, its value, its future and its staff in the event of one of th e partners not being able to work.

Once we’d designed this simple risk strategy, we put it in all place working closely with the agency’s accountant and lawyer.