More than half of the UK’s SMEs would have to shut down within a year if one of their key employees became critically ill or died, according to a new report.
Research by Legal and General found that 53 per cent of small- and medium-sized businesses in Britain would need to close if they lost one of their most important workers.
The survey of more than 800 small businesses found that the figure had increased by 13 per cent since 2015, with more firms dependent on their key staff.
New companies and sole traders are particularly vulnerable, with 67 per cent and 73 per cent respectively predicting that they would last less than a year.
While SMEs are aware of this risk, 48 per cent of sole traders and more than a third of all businesses valued at under £250,000 were found to have no form of cover for such a loss.
Elsewhere in the report, 65 per cent of SMEs have some form of business debt – an increase of 33 per cent since 2011 – with the average borrowing £176,000.
Meanwhile, 19 per cent of SMEs had borrowed more than £50,000 on a credit card and 19 per cent of owners had used personal loans to support their businesses.
“SMEs form the backbone of Britain’s economy and are a vital source of employment for millions of people,” said Richard Kateley, head of intermediary development at Legal and General. “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 a 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.”
For more from the report, see the Legal and General website.