Small businesses owners today often find themselves consumed with the day-to-day running of their firms and find very little time to sit back and take stock of other important considerations. And while this kind of focus ultimately makes for a more successful business and happier customers, it also means that they sometimes forget to think about the ‘what ifs’.
According to research from Legal and General, one area that often gets overlooked is the impact that the loss of a key person or the business owner would have on the business.
This is a reality that is highlighted in the firm’s latest State of the Nation’s SMEs report, which shows that 58% of SMEs said that the loss of a key person would not affect their creditors’ attitudes. Furthermore, 63% did not think it would affect their brand and 47% said it would not affect their cash flow.
However, deeper digging revealed that 40% of small businesses would cease trading in less than a year if a key person died or became critically ill and was unable to work. But despite this fact, only 40% of SME owners have some form of personal life cover in place.
The report, which looked at many of the risks associated with running a small business, found that sole traders would be impacted the most by the loss of a key person, with 63% saying they would cease trading immediately. Businesses less than two years old were also found to be vulnerable, with 46% highlighting that they would cease trading immediately too.
Worryingly, though, it was sole traders and new businesses that were also least likely to have some form of protection in place, with 76% of sole traders and 72% of new businesses stating that they are operating without key person cover.
The main reason many SMEs are ignoring the need for cover is simply because they have never considered it or didn’t see the need. This was true for more than 70% of businesses analysed.
However, the L&G report found that there is a definite need for cover, with 57% of SMEs having some kind of business debt, which could become immediately repayable if the owner or a key person departs the scene.
Richard Kateley, head of specialist protection at L&G, believes there is a key opportunity to address the lack of education that surrounds business protection.
“Business owners are very good at planning what would happen if they faced an IT failure or security breach yet often overlook financially protecting the business through a lack of awareness or education,” he said.
He added: “There is a real need for advisers to guide their clients through the products available and make sure they are prepared for whatever the future may hold to protect the business, their staff and families.
“Helping these dedicated professionals and entrepreneurs overcome any obstacles they face, whether it’s a business issue or the loss of a key member of staff, is crucial.”
SMEs should be looking at all insurance types for their business and this includes protection and life assurance for key members of staff. Many SMEs may not understand what cover is available. Our advice on these products is free and our aim is to talk to our SME customers to fully explain the breadth of products available and the need for protection policies in the workplace.
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