Research indicates that over 50% of UK SMEs would close their business if a key member of their team became critically ill. This shows a 13% surge from 2015’s research and the FTSE insurer’s ‘State of the Nation’s’ SMEs report which delivered to 800 small businesses. The report found that start-ups and those who are self-employed are the most likely to close their doors if an event so critical took place.
67% of start-ups and 73% of sole traders believe that their business wouldn’t last the year if they lost their key member.
The survey also found that 65% of the SMEs who took part have one form of bad debt a growth of 33% from 2011. It also revealed that on average a business would lend £176,000 and 19% were believed to borrow over £50,000 via credit cards while an additional 19% resulted to using a personal loan to maintain their business.
Even though SMEs are unaware of the influence losing a key member could potentially have they have not any cover to replace if a loss that big happened. In fact, of those surveyed 48% – just under half of sole traders do not currently have a replacement when they are most like to crash if an event so drastic happened.
Over a third of businesses valued below £250,000 plus 35% of family run businesses are also left unprotected when it comes to their insurance policies. What’s more, 72% of sole traders and 63% of companies with one owner do not have a ‘key person covers’ suggesting how significant it is to protect your business and staff from events such as critical illnesses.
Head of Intermediary Development at Legal & General, Richard Kateley comments;
“SMEs form the backbone of Britain’s economy and are a vital source of employment for millions of people, yet as our research shows, a significant proportion of these businesses across the UK are leaving themselves at risk from critical events. Many businesses insure what they can see and feel, such as their contents, property or vehicles, but many forget about a business’s most important asset – its people. For over half of the SMEs we surveyed to believe they would last less than a year should a key employee die or require a long absence due to a critical illness is a real concern, not just to the business but its other employees.
“Whilst access to finance remains vital in helping UK SMEs to establish themselves and thrive within their sector, many are continuing to rely on unsecured lending sources, such as credit cards or even personal loans to the business. The fundamentals of Britain’s economy might be strong, but there should be concerns over what would happen if these businesses were unable to pay their debts in the face of financial shock such as losing a key person or business owner. Markets will change, elections will come and go and the uncertainty of leaving the European Union will settle, but a business will always need its key people to make it a success.”