In a digital world where businesses are now seemingly easier than ever to set up, the structure of how to set a business up seems to have shifted. Before the internet arrived, you would have usually gone through a clear and rigid process that most other business owners would know intimately too.
There would be a range of defined hoops to jump through to meet the lending criteria of standard lending processes – and your main job was to woo the wielder of the ‘approval stamp’ and impress them on how you’ve thought about absolutely everything including the contingency plan.
If you even dared to allude to the pitfalls of business not applying to you, you may as well have taken your own ‘rejected’ stamp to the meeting.
Fast forward to today, and it only takes a little bit of creativity and resource to start a business from absolutely nothing and start to do well. Without the need to ‘bare your soul for money’.
This is great news of course but there’s a flip side to it.
Businesses are now able to get started with such ease that the advance planning has taken a back seat – with little consideration on what will happen if things slip or don’t go according to plan.
According to the research of Legal & General there is a sizeable gap in the present and future protection and contingency plans in place for small to medium sized businesses.
The Legal and General report states that 53% of SME’s would cease trading within 12 months if they lost a key individual and nearly 40% shared that losing a key person to death or critical illness would have the biggest impact on their business.
Conversely, over half of business owners have not left instructions on the company shares in their wills and over 75% of them shared that they didn’t need to take out cover.
Rising Business Debt
The results of the report also show that there is a much higher level of debt within the UK small and medium-sized business arena. Nearly 99% of the 5.5 million businesses in the UK fall into this category and over two-thirds of these have some form of debt, averaging around £176,000.
According to research this has been a significant increase, rising from 32% in 2011 to 65% in 2018 with the most favoured types of borrowing appearing to be business loans, directors loan accounts, bank overdrafts, personal loans and credit cards.
With these trends in mind, it is easy to see why there needs to be adequate business protection in place to ensure the impact of plans going awry isn’t the kiss of death for your business.
What Is Business Protection?
Business protection is the term for products and plans which are designed to provide protection when businesses come up against the unexpected and unforeseen.
There is a wide range of products which can all be tailored towards your own specific needs, with the main products being:
Key Person Protection: Designed to provide financial peace of mind if a person vital to your business, such as a managing director or chairperson, dies, has a terminal illness, or is diagnosed with a critical condition.
Business Loan Protection: Designed to pay out an amount which will pay loan repayments, overdrafts or mortgages if a guarantor dies or is diagnosed with a limiting or life-threatening condition.
Relevant Life Plan: A simple life insurance policy designed to help employers offer death in service benefits to their employees.
Share Protection: Designed to help existing shareholders or business owners buy the shares which somebody who has died or been diagnosed with a critical illness previously owned.
As you saw from the statistics, many businesses are unprotected against some of their biggest risks – the unforeseen ones.
Even an established and profitable business can face adversity but if you face this amidst losing a key person too, many businesses wouldn’t survive a curveball of that multitude.
That’s enough of the doom and gloom though as the point here is to inform you of how to protect against that very scenario!
Nobody wants to need to use their protection policies and products, but they are your peace of mind, or the option for your business to continue to operate if you ever find yourself in these unfortunate circumstances.
Who Is At Risk?
Life itself is unpredictable so the short answer here is all SME’s are at risk. Having ‘people’ in a business is almost unavoidable, and it’s those very people that you need to provide a contingency for, should their ability within your business disappear or decline.
Think about your business structure right now…
Who is core to it?
How many core people are there?
How long could you cope if any of them were suddenly unavailable?
Sadly, many SME’s could lose everything without the right protection in place, yet we saw that MOST businesses are unprotected.
The State of UK SME’s report showed that having no cover in place is particularly prevalent within these types of business.
First-generation family-run companies (39% have no cover)
Small business with a net worth of less than £250,000 (36%)
Companies with borrowing of less than £50,000 (39%)
All-female owned companies (42%)
Sole traders (48%)
Why Don’t Businesses Have Business Protection?
There will always be an element of ‘it won’t happen to me’ in life – if we all spend our time worrying that things might actually happen to you, we’d be a sorry state of affairs.
But the sad truth is, it does happen to people, and by putting the protection in place to help you should this happen, you’re helping to ensure your business could survive if you lose a core person from it.
Key Person Protection
As we saw, more than half of SME’s are without key person protection. Over 30% of business owners hadn’t considered this and 31% shared that they didn’t get around to taking out a policy. More than 27% had said that cost was their main concern, but the truth is, the cost is minimal when you think it would protect those 75% of businesses who said they’d go under if they lost a central person from the business.
Over half of business owners leave no instructions in their will regarding shares yet shares are not just a financial aspect of your company. They are also in control of it and over a quarter of SME’s said that they would try to buy the available shares. Share protection allows partners, members, and directors to maintain control of the company rather than them being inherited by the estate.
Relevant Life Plans
According to the report, over 85% of SME’s with profits under £50,000 have never heard of RLPs. Once being made aware of them, 73% were interested in exploring this and only 9% ruled out investing in this product so it’s reassuring to know that protection for your whole team is easily accessible.
Business Loan Protection
Interestingly, nearly 30% of businesses didn’t know that in the event of death, a director’s loan account needs to be fully repaid. Having BLP would mean this could be prepared for and protected against rather than an unpleasant scare.
We’re here to help…
If this report is anything to go by, it seems awareness is one of the missing pieces. Running a business requires so many moving pieces, that many businesses don’t have the time to stop and think about ‘all of the things’ that could go wrong. Or know what the stats are on what protection is needed or most valuable.
That’s where we come in. In a short space of time, through a call or a meeting, we’ll explore your situation with you, inform you of what’s available and relevant to you and help you should you decide to take any of the products further.
The peace of mind from knowing that you have your back covered financially should anything impact your key people is tangible. It’s called future planning for a reason – it’s often the difference between your business having a future or rapidly declining.
It can also allow your key people to focus on what they need to personally rather than manage the burden of their impact on your business too. If you’d like a chat with any of our experts to look at what protection your business would benefit from, get in touch here and we’d love to help.