Surviving the Global Cash Crunch Crisis
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Surviving the Global Cash Crunch Crisis
Against the backdrop of rising inflation, market volatility and supply chain disruptions due to geopolitical tensions, business owners face increasing challenges such as access to capital in a slowing economy. According to accounting firm Deloitte, an increasing number of firms are expected to face a cash crunch in 2023, with more restructuring happening in South-east Asia and China.1
As a result, managing succession-planning risks and having enough liquidity have never been more crucial to ensure the survival of a business. Firas Khouja, Senior Director and Estate Planning Consultant at Howden Private Wealth, shares how the use of globally-sourced life insurance solutions can help mitigate such risks and provide the necessary cash flow to keep businesses running in difficult and uncertain times.
Why should business owners care about corporate succession planning now?
In an uncertain landscape, business continuity planning can give investors and stakeholders the much needed confidence and assurance that a company has taken steps to mitigate risks. While entrepreneurs are generally aware of the need to establish a personal insurance portfolio, many don’t realise insurance can play a crucial role in ensuring business protection and continuity.
With so much uncertainty, how can business owners plan for business succession?
One strategy is to look at insurance solutions which offer a unique combination of certainty – through whole-of-life product design with solid guarantees – and flexibility to allow you to respond to unexpected circumstances.
Take for instance technopreneurs who’ve seen their fortunes nosedive in the past year. Their companies are facing urgent challenges including uncertain business prospects due to regulatory changes, cash flow shortages and reduced access to capital. The use of insurance solutions is a simple risk management tool that could help them protect their wealth and business, allowing them to focus on running their business.
In uncertain times, we know liquidity is key. Having a buy-sell agreement is imperative and highly effective to ensure entrepreneurs and families receive substantial liquidity in the event of an unexpected demise of a business partner, thus allowing the surviving partner to take control of the business.
How can business owners take proactive steps to plan for business succession?
In most cases, the survival of a business is intimately tied to key individuals and families. If a business owner passes away unexpectedly, this often translates into a potential loss of customers and a loss of confidence from investors. The use of a key person protection plan is a simple tool to provide liquidity and buffer against potential losses.
Similarly, for a fast-growing privately-owned company, using insurance solutions to insure the business founder prior to an IPO can help boost investor confidence and support the company’s valuation.
We must not forget the role of talent in ensuring business survival. Entrepreneurs can utilise insurance solutions as a form of employee incentive to retain key executives, who possess crucial expertise, relationships and knowledge of their business.
What advice would you offer to entrepreneurs looking to plan for corporate succession?
History teaches us wealth and success are only temporary if not carefully protected over time. Given the unpredictable and complex business environment, the need to start business continuity planning early is crucial to mitigate potential risks. When you see the problem arising, it’s often too late. As Benjamin Franklin famously quipped – “If you fail to plan, you are planning to fail.”
Therefore, entrepreneurs are encouraged to seek the advice and tap on the expertise from trusted advisors to provide tailored solutions to support their unique business continuity and succession plans.
Firas Khouja
Senior Director, Estate Planning Consultant
fkhouja@ipghowden.com
+41 78 717 69 39
Based in Geneva, Firas Khouja is a Senior Director and Estate Planning Consultant at Howden Private Wealth with over 14 years of experience in the wealth management industry working with High Net Worth individuals and families.
Watch his video here to gain valuable insights on wealth protection and liquidity planning.
1. Angela Tan, “Managing cash flow is a must in good times and bad: Deloitte”, The Straits Times, May 11 2023, https://www.straitstimes.com/business/managing-cash-flow-is-a-must-in-good-times-and-bad-deloitte