case study: Ugly Bread Bakery
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Jade Vendone, 31, is the founder and sole shareholder of Ugly Bread Bakery. The bakery opened its doors to the public on 22 November 2014 and is gearing up to open two new shops in Nottingham within the next couple of years.
Ugly Bread Bakery, in Pelham Street, Hockley has a strong following and has just celebrated its second anniversary. Jade’s business has developed a renowned reputation for fresh, delicious ‘humble food’, which can be enjoyed in a relaxed atmosphere with fast service.
Jade, who has previous experience in the food industry has worked hard to successfully build a small, but profitable food business that is run as a private limited company. In the two years since it opened The Ugly Bread Bakery has grown organically, taken on new staff and installed new software to help with the management of the company.
“It hasn’t always been easy, the hours are long and sometimes I need more stamina, but with the help of some very fine enthusiastic staff, we seem to please our customers”.
Why is Jade a Key person?
After discussions Jade realised that although she has reliable staff, they still rely on her knowledge and expertise, therefore she still spends much of her time at the shop. As the founder she is the lifeblood of the business, she set it up, is now Managing Director and most of the Ugly Bread Bakery’s goodwill derives from her. Jade is directly and indirectly responsible for the majority of the business income. Jade’s clients trust her to meet their needs, the suppliers know that whilst she’s around, they will be paid and the bank has been very helpful with providing financial support, it knows whilst Jade is around, its money is safe.
Jade is a key person within her business. She is someone whose absence from the business through death, critical illness or long term disability, would have a serious effect on its future profits. Although Jade has no financial dependents and no desire for the business to continue if she was to suffer a premature death, if she became critically ill or suffered a long term disability, her business could suffer and could potentially lose up to 70% of its revenue and profits.
In addition, she would have to recruit and retrain a replacement, which could take at least three years. Staff could leave, fearing their jobs were at risk, valued clients could be lost to rivals, suppliers might require payment in advance and the bank could call in the overdraft/loans.
A suitable protection plan could prevent these challenges, by ensuring the necessary cashflow was in in place should it be required. This could be used to repay the bank, provide salaries and pay suppliers. It could be used to replace lost revenue and perhaps even provide a temporary replacement for Jade.
This would allow Ugly Bread Bakery to continue trading, and most importantly continue to provide Jade with an income whilst she recovers. It would also provide time to build up the business again, or alternatively maintain its position and reputation while a buyer was found.
Following discussions, Jade recognised the importance of exploring Key Person Protection. She agreed on one of the four methods used which was most suitable for her business needs to calculate how much cover she would need – as a multiple of gross profits.
“Emma gave me advice on business protection, the advice was sound and valuable and showed me Emma thoroughly listened and understood my aims and objectives”.
As a limited company is a legal entity in its own right, the usual way to set up key person protection is for the company to own the protection plan for its own benefit. The company will apply for a protection plan on a life of another basis – with the company as the plan owner and the key person as the life assured. The plan payments are a deductible, but not every key person protection plan payout will necessarily benefit tax relief and the tax rules may change at any time.
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