A Quarter of UK Family Businesses Would Close Immediately If the Owner Died or Became Critically Ill

In Business, Family, Industry News, Insurance, Protection by PCH Staff

An alarming number of family businesses across the UK are putting themselves at increased risk of failure by not having safeguards in place should certain critical events occur, a new survey has found.

According to Legal & General’s “State of the Nation’s SMEs” research – which polled over 800 small businesses – just 42% of family businesses in the UK have any form of succession planning in place. In fact, less than a third (27%) said they would survive into the second generation and only 10% into the third.

Over half (51%) of family business owners said they would be willing to secure their businesses using their personal wealth following the death of a shareholder.

However, despite the lack of planning, almost half (48%) of family businesses surveyed said that the death or critical illness of a business owner was the number one risk to their operations. In fact, if the business owner were to die or fall critically ill, the impact on many businesses would be too much to cope with. Over half (57%) of family-run firms said they would cease trading within a year, while a quarter stated that they would have to close their doors immediately.

The research from L&G also highlights how there is a degree of uncertainty among many family businesses regarding how they would manage should the owner die.

One in five said shares would be purchased from the deceased estate, but many did not indicate where the funds would come from. A further 17% said they would sell their shares to a third party (although they weren’t sure of the kind of price they’d achieve), while a fifth would close the business down.

So Many Family Businesses Lack The Necessary Plans

“With nearly half of these businesses rating the death of an owner as the highest risk to their operations,” said Richard Kateley, Head of Intermediary Development at Legal & General, “the UK’s family-run firms have clearly recognised the impact a critical event can have on their business, yet so many lack the necessary plans to help them manage the loss of a key person”.

He added that the death or critical illness of a key person, who may also be a close relative, would have an even greater impact on family-run businesses due to the added emotional aspect.

Kateley urged family-run businesses to speak with a financial adviser to understand how business protection can help them mitigate risks.

Family businesses in the UK are a staple part of the economy. The fact many would cease trading immediately should the owner die or become critically ill is very worrying. It is crucial that these businesses have set succession plans in place and financial safeguards to ensure their continued operation should the worst happen.

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