• For over half of businesses (54%) COVID-19 has had a negative impact, however the financial outlook for 12 months’ time looks more positive, with 57% feeling positive
• Six in ten businesses (59%) say they would cease to trade in less than a year of a key person dying or becoming critically ill
• Legal & General 2021 ‘State of The Nation’ report reveals financial health of UK’s SME businesses

The UK’s SMEs are more financially vulnerable in several ways than in 2019 yet they remain optimistic for future growth, according to the latest ‘State of the Nation’ report from Legal & General. Of particular concern is the level of debt and contingency planning for the loss of key people, which would leave the business exposed.

The insurer’s report, which looks at the health of the UK SME sector, surveyed 500 UK business owners and looks at the impact of Covid, the financial vulnerability of firms and their future outlook with the following key findings:

Business vulnerability

• Six in ten businesses (59%) say they would cease to trade in less than a year of a key person dying or becoming critically ill.
• A business owner dying remain the top scenarios for serious impacts on a business at 52%.
• Three-quarters (75%) of businesses have corporate debt or borrowing of some form, higher than the 51% in 2019, 67% of which borrow over £50,000, far higher than in 2019 (50%).

Covid impact

• For over half of businesses (54%) COVID-19 has had a negative impact, however the financial outlook for 12 months’ time looks more positive, with 57% feeling positive
• 22% said the business recovering from Covid was their main concern over the next two-three years. However optimistically expanding the business is on the minds of 33%

Planning for the future

• While two in five (39%) businesses have an insurance policy to secure COVID borrowing, over half (54%) of businesses are using a form of personal security.
• Nearly one in three businesses (32%, climbing to 72% for sole traders) do not have a succession plan in place and 41% would use cash savings as continuity or for disaster recovery – up from 23% in 2019.
• Only 18% of firms would use an insurance policy to fund buying back a deceased business owner’s shares. Most intend to use the personal wealth of remaining owners (31%) or a bank loan (29%) although consideration as to whether these would be viable solutions, or even available, in the future is likely required.

“The report highlights that there is greater optimism among UK SMEs than you may expect after such a tough time with Covid. However, it’s clear they are vulnerable to the loss of a key person with over half regarding it as the biggest scenario for serious impacts on their business. They are also vulnerable when considering the levels of debt they have and the personal security they have given in relation to the loans. Is it in their best interests to risk their personal wealth or their house as security or would it be a better solution to use insurance cover?

“We would urge SME business owners to consider the contingency plans they have in place and speak to a financial adviser urgently if they have no cover to protect themselves and their business in the event that a key employee becomes ill or dies..”

Jeff Woods, Head of Intermediary Development at Legal & General

The report is based on a survey of over 500 small businesses throughout the UK. It was carried out by Savanta in June 2021, an independent market research consultancy, who spoke to a range of businesses throughout the UK, from limited companies and sole traders, to partnerships and limited liability partnerships. The sectors include health, retail, financial services, the public sector, IT and construction.