What happens when you're a man down?


For many small business owners, daily pressures leave them with hardly any time to consider the consequences of themselves or another key person falling ill, becoming incapacitated or passing away. Would that spell disaster for the enterprise they have worked so hard to build up?

Key Summary

  • Businesses across the country are downplaying the impact of a loss of a key person
  • Over three quarters of SME's have at least one key person whose loss through death or serious illness would seriously impact that business
  • Key person insurance, life cover and critical illness cover can help mitigate the financial impact of losing a key person - See more at: http://businesshelp.lloydsbankbusiness.com/news/december-business-insights/loss-of-a-key-person/#sthash.KaBeO4Ah.dpuf

The recently published Scottish Widows Business Protection Report* throws into stark relief the serious risk that small and medium-sized companies (SMEs) face when it comes to losing a key individual.

"It's critical that small business owners consider more carefully the implications," says Lloyds Banking Group Protection Specialist Johnny Timpson . "In fact, the country as a whole needs to re-evaluate the importance of SMEs, including micro- and family businesses. There are around 4.6 million in the UK - a huge number - who employ a total of 23 million people and, to be honest, they will take Britain out of recession."

Over three quarters of SME respondents (mostly the owner, founder or partner) surveyed for the report say there is at least one key person - often themselves - whose loss through death, critical illness or long-term incapacity would seriously impact their business. And more than half say they would cease trading.

"Losing a key person could be a double whammy for a small business," explains Johnny, "as it faces not only operational upheaval and loss of income, but also extra costs. These could put the business under such strain that it battles to survive." For small businesses and sole traders, the wider impact could extend to home life, as "over half of the smallest businesses are home-based, so the mortgage and family finances come into it too."

Despite this risk, 77% admit to never having sought any advice on business protection insurance, and just 17% have protection in place. "That means most have by default elected to self-insure," Johnny points out. "The risk doesn't go away, but will have to be borne when it does become real... and that could have a severe impact on the business."

The reason why so few of Britain's SMEs have contingencies in place for loss of key person is simple, says Johnny - time. "The day-to-day focus for those at the helm is very much on running the business, making sure the needs of existing customers are met and looking for new customers. They might simply not have had the time and head space to sit down and think about the 'what ifs'."

The first step in ensuring a business will survive a 'man down' situation is to "invest a little time to an impact assessment, preferably with someone who can stand back and raise searching questions," advises Johnny. There are three key aspects to consider, says Johnny: "The operational and financial impact of losing a key person, the ability to meet liabilities like loans, and succession."

"Ask yourself - how dependent is your business on a certain individual, perhaps yourself or someone else? What would the impact of death or long-term illness be? What are the risks and liabilities your business would be exposed to? What would it mean in terms of loss of income and additional costs? What is my plan B for my business?

"Then, make sure you have a range of coping strategies in place - there is no one magic bullet. You might decide to accept some of the risks yourself if you have the resources, or you might consider a suitable protection option, be it key person insurance, life cover or critical illness cover."

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