If a Disability Prevents You From Working, What Happens to Your Business?

As a self-employed lawyer, you are directly responsible for your business expenses. So what would happen if a serious accident or illness prevented you from working?

Just because you can’t work doesn’t mean your business expenses suddenly stop. You’ll still owe rent, equipment lease payments, and utilities. In addition, you probably have employees with families who depend on your ability to pay a salary on time. 

You’ll need money to keep the doors open and the lights on so you have something to go back to when you recover. If it looks like you can’t return, you’ll need to cover the costs of shutting down your business. So how do you protect against this problem?

There are many ways to protect against business expenses if you are no longer able to work. Here are a few:

Rely on existing billings until you recover

At any given time you probably have several clients who owe you money. If paid, this income could be used to offset your monthly business expenses while you are disabled. However, a heavy reliance on this strategy comes with significant risks. 

Many disabling illnesses will gradually impact your ability to earn a living over a period of several weeks or months. During this period, your billable hours may dramatically decline, and by the time you are no longer able to work, there could be significantly less unpaid business than you’d expect to see when you were healthy. This may not be enough to carry your business expenses. 

Another concern is that is that once word gets out that you are no longer able to work, clients will drag their feet or even refuse to pay their bills. It’s even worse if you can no longer afford to employ someone to follow-up on outstanding invoices. 

Your accounts receivable can help carry your business expenses, but at best it’s only a temporary and unpredictable solution. 

Rely on partners to cover your expenses

Obviously, this is not a solution if you are in sole practice, but it’s certainly an option if you are in a larger firm where your expenses can be spread over several people. The problem is with small firms where your share of the costs can be very significant. Your partners are probably just as busy as you and asking them to service your clients and cover your share of the expenses could place a heavy burden on them. This would affect their own business and everyone could suffer financially. It may be bearable for them in the short run, but your disability could last for several months or years. There are better solutions.

Rely on personal savings

The money you set aside for you and your family? Don’t even think about it! Unless you are absolutely certain that you will quickly return to work, you risk losing a nest egg forever. Why take that chance?

Close the doors

This is an extreme option that should only be considered if you know you will be disabled for a long time, or will never return to law. If there is any possibility that you will recover, you want to do everything possible to keep your practice viable so you have something to return to when you are better. Can you imagine building your practice from scratch again?

Even if closing the doors is unavoidable, it does not eliminate your obligation to pay significant expenses. This may include taxes, penalties for breaking an office rental agreement or equipment lease and staff severance costs.

Business Expenses Insurance

Business Expenses Insurance is designed to cover your share of the expenses that are normal and customary in the conduct and operation of your office should you become disabled. These expenses may include:

• Rent
• Utilities
• Employee salaries
• Stationery and other office supplies
• Business taxes
• Business equipment

A Business Expenses policy will pay a monthly benefit equal to your eligible expenses, after any incoming revenue is deducted, up to the policy maximum. You may even be able to carry forward the unused portion of the benefit from months when expenses are lower than predicted. In addition, your policy may cover the costs associated with closing your business, such as penalties for breaking a lease. 

It’s important to note that your personal income is not considered an eligible expense under a typical Business Expense policy. You should address this need with a Disability Income policy.

Purchasing Business Expenses Insurance is clearly your best solution for meeting your expenses should you become disabled. It allows you to keep your doors open until you can recover, or help cover the costs of closing your doors. The premiums are normally considered a tax deductible business expense. And while the benefits payable would be considered taxable income, the expenses incurred while you are disabled would be deductible. 

If you want to learn more before speaking to an insurance agent, The Canadian Bar Insurance Association (CBIA) offers excellent insurance education articles and planning tools for lawyers at www.barinsurance.com. You can also find your local CBIA insurance sales representative who can assist you with your business expense protection questions and needs. 

Please note that my advice is not intended to replace that of a qualified insurance expert who has personally reviewed your specific benefits and insurance needs.