The needs and priorities of business owners are naturally vast and vary depending on which sector they are in, the size of their business and multiple other variables. But the pandemic upending most firms’ idea of ‘business as usual’ has united us all. As such, SMEs have various priorities to evaluate as they settle into the new year – here are four that must remain front of mind throughout 2022.
Firstly, corporate debt, and how to deal with it, will be front of mind for many business leaders this year. Since 2009, Legal & General’s State of the Nation research has assessed the pressing concerns and ambitions of the UK’s SMEs. The latest figures, released in October 2021, show that between 2011 and 2019, the number of SMEs with some form of debt increased incrementally to 51 per cent, before rising in 2021 to 75 per cent. Coupled with this is a 50 per cent rise in the number of SMEs with ‘significant’ debt of between £50,000-£250,000, meaning average overall debt now stands at £200,000. This is perhaps unsurprising given the impact of the pandemic and the increase in government borrowing, particularly within certain sectors like hospitality and retail.
But it is by no means insurmountable – financial advisers are best placed to help SMEs tackle it head-on and secure a safe financial future. Measures to spot and support signs of client vulnerability will also need to be revised and ramped up significantly.
Businesses’ security for borrowing should also be front of mind this year. In 2021, over a third of SME owners gave personal guarantees for corporate debt, while 24 per cent used a charge over personal assets. Risking personal wealth to provide security on corporate debt can be partly attributed to the lack of consumer understanding around the cost of varying forms of protection. When asked about the cost of life insurance, 86 per cent overestimated the actual cost of the policy, highlighting a window of opportunity for advisers to dispel this myth and offer a cost-effective solution.
The pandemic has also shifted business owners’ broader perceptions. The crisis naturally heightened firms’ awareness of how vulnerable they are to a crucial figure being unable to work
or passing away, with over half of SMEs ranking the death of an owner as the top risk faced by their company. Significantly, 70 per cent noted that they would cease trading within two years should the worst happen. Not only would this bring personal devastation, but also a significant financial impact for employees, investors, suppliers, customers and lenders alike. With less than one in ten – 9 per cent – of our 2021 respondents having heard of key person income protection cover and taken a policy, advisers have a golden opportunity to educate owners on the forms of support on offer and help safeguard firms against the worst happening.
Fortunately, a well-crafted protection policy can help mitigate this risk. Policies can cover the event of a key person being off work through illness, being diagnosed with a critical illness or passing away. Advisers must educate business owners on the broad range of support on offer, such as key person income protection policies for example, which can cover loss of profits or funding to hire temporary staff in the event of the illness or injury of a key employee.
All this culminates in the changing perception of protection. Over half of SMEs say that following the impact of Covid-19 they are now more likely to consider protection for their various needs, while four in 10 noted that with the benefit of hindsight, they wish they had introduced a greater level of protection in advance of the pandemic. The perception of protection is undoubtedly changing, offering a fantastic opportunity for advisers to renew conversations with existing clients and start others afresh.
This all boils down to one key point – advisers are best-placed to help business owners to mitigate key risks and support their recovery. Our research tells us that 97 per cent of business owners want professional support when protecting their business and, of those who had cover, 73 per cent took out their policy following advice. Against a gloomy and turbulent economic backdrop, this is a good opportunity for advisers to demonstrate their expertise, duty of care for their clients, and the value of their advice. Let’s seize this with both hands.
