Going it alone

Over the last few weeks I have met a number of people who have decided to set up business for themselves. I remember being in the UK at the beginning of the Thatcher years when, to relieve the high unemployment figures, people were encouraged to start their own businesses.

Many of those who took up the challenge are now multi-millionaires. Unfortunately, many also, ended up in the bankruptcy court.

A huge number went out of business in the first two years, not necessarily through bankruptcy but because they realised that they were not going to succeed and they had used up most of their money.

For those of you reading this article and who are about to embark on the great voyage of self-employment, I am not trying to put you off...really I mean it. In fact, I am always very impressed with anyone who is willing to undertake it and always try to encourage them, despite my remarks above.

I know that if they do not do it, they will always regret it, as they will never know whether their big idea or project would have been a success and they would have become fabulously rich, famous or both.

However, what I always do, also, is encourage them to put some contingency plans in place.

This means have some emergency funds available outside the business, just in case things do not work out as they hope. In addition, put a whole raft of insurance policies in place to protect themselves and their family as the latter will suffer equally as much, if not more, if the business does not work.

It's expensive, but…

Unfortunately, most of the insurance needed is expensive and, in the new entrepreneur's mind, could be better used in his or her new business, which may be true… until something untoward happens and then they regret it.

Medical insurance is a must and of those who do take it out, many buy on price rather than cover. Believe me, in this case the old adage of you get what you pay for is true.

Before buying, decide exactly what cover you require and where you require it. Medical insurance is expensive for a very good reason, many people need it and make claims upon it, hence premiums are seemingly expensive, especially as we get older and our bodies do not work quite as efficiently as they once did.

Another form of insurance, which is a must for the small business, is 'income replacement' or 'permanent health' as it is sometimes called. This type of insurance will pay out a proportion of your income if you are unable to work for a long period.

I have said that it is essential for a very good reason: in most cases you are the business and if you cannot work, the business will collapse.

Therefore, insurance monies can be used to either provide you and your family with an income during the illness or to employ someone else to keep the business going in your absence.

Unfortunately, because of the likelihood that this will happen, there are very few major insurance companies who will provide this form of insurance in this region.

Finally, do not forget about life insurance to ensure that your family is well covered should anything happen to you. After all, as I mentioned, you are likely to be the business, and so without you the business is unlikely to have much worth in the early years.

Take advice, if not you may regret it. So your new business plan should include a visit to your independent financial planner to discuss the contingency planning side of the business.

Of course, all of this applies equally to existing businesses, many of whom have now got to the stage of being slightly 'blasé' about the risks, but can you tell me what is going to happen tomorrow? If not, do something about it, before it is too late.

The author is director of marketing with Towry Law International, Dubai.