One in four SMEs depends on key figure for survival


Date: 13 August 2019

Businesswoman looking at documents with worry

A new poll has found that more than a quarter of small firms would face immediate closure if a key person in the business died or became seriously ill.

Legal & General has surveyed over 700 UK SMEs from a range of sectors as part of its 2019 State of the Nation's SMEs study. The findings show that 26% of small businesses said that they'd face immediate closure if a key person died or became seriously ill. It means that up to 1.5 million SMEs could be at risk of immediate closure should the worst happen.

A further 26% of small firms said they would have to cease trading within a year. In addition, the research has found that 15% of businesses that had already suffered such an event have shut their doors.

A key person is someone whose illness or death would directly cause a financial issue for a business, such as a fall in revenue, loss of clients or a loss of efficiencies.

The report has warned of the "wider economic impact" that could be caused by businesses not having a key person insurance policy. According to government data, SMEs account for more than 99% of Britain's 5.7 million private sector businesses and employ over 16 million people. Legal & General's research indicates that almost three million SMEs could be at risk of closing within a year of losing a key person.

Nearly two-thirds (63%) of the businesses surveyed said they had more than one key person; losing a key person was ranked as the number one concern. Of those SMEs that had already suffered from such an event, nearly a third (30%) said that a business owner or important employee dying or becoming critically ill had impacted their profits. Almost one in five (19%) said it had lost them the confidence of their customers.

Even so, 70% said that they had either never considered, or did not understand the need for business protection. Just under half (48%) of those surveyed said they didn't have cover in place for any of the key risks of key person, debt or share protection.

"SMEs are acutely aware of the risk losing someone important to their business could have, but whilst many companies will insure their computer systems or buildings, they often don't think about protecting their most important assets - their people," said Richard Kateley, head of intermediary development at Legal & General. "Without the relevant business protection, the impact of losing a key employee or business owner could threaten the ambitions and hard work of SMEs up and down the country."

Written by Rachel Miller.

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