The majority of Midlands business owners are not taking steps to protect themselves from unforeseen events that could cripple or finish their businesses, according to experts at EFG Independent Financial Advisers in Birmingham and Wolverhampton.
Managing director John Male pointed to a recent report that showed that almost three out of four business owners aged under 40 do not have any life insurance cover.
The report, by Legal & General, revealed that 40 per cent of business owners surveyed thought their business would fold within 18 months of the death or critical illness of a key person.
“Six out of ten businesses have no protection cover in place to cover the cost of purchasing shares should a business owner die, and 51 per cent of businesses have not protected their corporate debt,” said Mr Male.
Legal & General estimates that there is a £1.35 trillion shortfall in business protection cover for UK businesses.
Mr Male added: “This is a significant gap that means many business owners are exposing themselves to financial risk and lack vital cover for unforeseen events.
“Worryingly, this is clearly a growing problem, as it is an 18 per cent increase on L&G’s previous research findings.
Legal & General breaks down the protection gap cover figures into a corporate debt gap of £223 billion, a shareholder protection gap of £683 billion and a key person protection gap of just over £439 billion.
“The biggest increase is in the shareholder protection gap, which indicates that the majority of companies still don’t have cover in place to protect their partners, directors and members should the worst happen,” said Mr Male.
He highlighted six key questions that business owners should be asking themselves.
What impact would the death or critical illness of a key individual or business owner have on the business?
How many of the key individuals are protected against death or critical illness?
How long would the business survive without those key individuals?
How much corporate debt do they have and is it protected?
What agreements does a business have in place in the event of the death or critical illness of a business owner?
When did the business last have its company agreements reviewed?
“The figures show that 85 per cent of those surveyed had three business owners or less.
“This shows that businesses with fewer owners have a greater level of responsibility for the success of the business than large companies that have more owners,” said Mr Male.
“Without meaning to be overly alarmist, it is nevertheless clear that these figures are alarming. At the very least, companies with fewer owners should urgently consider some form of key person protection.
“Putting protection for various eventualities in place will cost, but the cost will be far lower than that incurred trying to continue to trade following the loss or critical illness of a key figure in the business.
“We would urge small business owners to prioritise a review of the cover that they have in place – if any – and to take professional advice at the earliest opportunity,” he said.
EFG Independent Financial Advisers has 12 advisers working from offices in Birmingham, Wolverhampton and London advising clients on a variety of solutions encompassing personal, family and business aspects, whether for wealth protection, family assets, wealth development, wealth preservation or retirement planning.