Business Protection  

What to know about advising on business protection

  • Learn the definition of a small business and the risks SMEs face.
  • Understand the different types of business protection available and what they cover.
  • Consider how to increase awareness of business protection among clients and the role of advisers in doing so.
What to know about advising on business protection

Parachutes were introduced in military aircraft after World War One, in part due to the recognition that pilots were more valuable than planes, since the latter could be more easily replaced. 

A century later, it’s a lesson that’s still lost on many small businesses. 

The small and medium-sized enterprise (SME) is the business archetype in the UK; there are about 5.7 million of them, making up more than 99 per cent of all UK businesses.

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Together they employ 16.1 million people, which is 60 per cent of all private sector employment in the country. And they contribute just over half of the UK’s total turnover.  

Almost every adviser, whether focused on mortgages, pensions, wealth or holistic advice, is therefore likely to have clients who own, run or hold senior positions in an SME. 

By definition, SMEs (businesses with fewer than 250 employees and a turnover under €50m, according to the EU Commission’s definition) are more vulnerable financially and more dependent on key personnel than their larger rivals.

Every year, more than 10 per cent of businesses cease trading, with the rate now at its highest since 2001. Around 5.5 million of the UK’s SMEs are in fact, micro businesses, employing fewer than 10 people.

These businesses represent 96 per cent of all UK businesses and a third of private sector employment.

Quite how dependent these micro businesses are on key individuals should not be underestimated.

Most, if not all, SMEs will have some kind of insurance, whether that’s fire, flood and theft, public liability or professional indemnity insurance.

Businesses of this size tend to protect their premises, property and stock. Very few consider the one asset that genuinely cannot be replaced – people.

As industrialist and philanthropist Andrew Carnegie once said: “Men and women, not machines, are the real source of profits in any business.”  

During the current uncertain time for British businesses, should more be done to protect that source?

What risks do SMEs face?

Firstly, we need to think about the following questions before we can answer this:

A heavy reliance on one or a few individuals? What plans do they have in place to replace the skills they will lose, or the profits that the individual generated, if they die or are too ill to work? 

Borrowing and debt? Can the business repay its financial obligations if circumstances change and demands for repayment are made?

Unplanned succession and ownership problems? What impact would a serious illness or the death of an owner or shareholder have on the business? What plans do they have to ensure the business can continue?

By addressing questions such as these, advice for business protection helps to negate the financial uncertainty that often follows the death or serious illness of a business owner or key employee, by building a portfolio of cover to protect the business that may include all or some of the following: