Small but mighty: Protecting the UK’s small businesses

Pete Williams, Aviva's Business Protection Development Manager, highlights the critical need for the small enterprises to have protection.

Did you know that in 2024, the UK was home to an estimated 5.45 million small businesses. These small but mighty enterprises, defined as businesses with 0 to 49 employees, make up a whopping 99.2% of the total business population in the UK [1].

Often driven by a single owner, these businesses are the lifeblood of our economy. However, this model comes with its own set of vulnerabilities, especially when it comes to the potential loss of an owner due to illness or death.

Common misconceptions about Business Protection

When it comes to business protection, there may be misconceptions and assumptions preventing small business owners from taking the necessary steps to safeguard their businesses:

"It won't happen to me." Some business owners may believe that serious illness or death is something that happens to others, not them. This mindset can lead to a lack of preparedness

"It's too expensive." While there is a cost associated with business protection, the potential cost of not having it can be far greater. There are various options available to suit different budgets.

"My business is too small to need protection." No business is too small to benefit from protection. In fact, smaller businesses could be more vulnerable to the loss of a key person, as they may depend heavily on a few key individuals. Additionally, small businesses may have fewer resources and a smaller financial cushion to absorb key person loss compared to larger companies.

"I have personal insurance, so I'm covered." Personal insurance is important, but it may not cover all the specific needs of a business. Business protection policies are designed to address these unique requirements.


Highlighting the critical need for Business Protection

1. Financial planning and protection

Given the potential for business failure in the event of an owner’s illness or death, it's vital for business owners to include protection measures in their financial planning. Significant illness can be just as devastating as death, leading to operational and financial turmoil. Therefore, it's essential for business owners to consider protecting themselves and their families against these eventualities.

2. Reviewing the company’s debt provision

A thorough review of the company’s debt provisions is essential. This review can help highlight potential financial risks and ensure that the business is prepared to manage its obligations. This includes understanding the implications of company overdrafts, credit cards, and other financial tools like invoice financing. Often, these financial instruments come with Directors Guarantees, meaning the director is personally liable for the debts if the business cannot make repayments. In the event of the director’s death, this liability extends to their estate.

3. The role of Key Person protection

Key Person protection is a vital consideration for small enterprises. This type of insurance provides the business with capital upon the loss of a key owner, offering financial breathing space during a difficult trading period. It allows the business to meet its current financial obligations and can facilitate an orderly winding up of the business if necessary.

Conclusion

In conclusion, business protection is not just a precaution but a necessity for small enterprises. By implementing comprehensive protection strategies, including Key Person insurance, small business owners can safeguard their businesses against unforeseen events. This proactive approach helps ensure the longevity and stability of the business, providing peace of mind for the owners and security for their families.

By using these tips, you can effectively communicate the critical need for business protection to your small enterprise clients, ensuring they understand the importance of safeguarding their business against unforeseen events.

 

Source

1)      Business population estimates for the UK and regions 2024: statistical release - GOV.UK Contains public sector information licensed under the Open Government Licence v3.0.