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30 May 2017

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Half of all SMEs ‘would not survive the loss of a key employee’

Posted by: Russell Brown

A majority of SMEs around the UK would not be able to survive if they were to lose a key employee for any reason.

That’s according to a new study which suggests that most small or medium-sized businesses in Britain would close down within a year if a key figure within their organisation were to die or become seriously ill and unable to work.

The striking numbers come from the insurance giant Legal & General (L&G), which surveyed more than 800 people and found that new companies are particularly vulnerable to collapse after the loss of a key contributor.

Worryingly, the proportion of SMEs which would be likely to fail if they lost an important employee is reportedly on the increase.

A full 13% more businesses indicated to L&G that they would be unable to carry on beyond a year if an important employee were to leave unexpectedly for any reason in 2017 than was the case in 2015.

Other findings from L&G’s recent research suggest that almost two-thirds (65%) of all SMEs across the UK have some form of business debt, which is a figure said to have increased by no less than 33% since 2011.

According to L&G’s latest numbers, the average borrowing level of a British SME now sits at close to £176,000, with 19% of the companies polled saying that they have borrowed in excess of £50,000 via credit cards.

A further 19% of respondents to the L&G survey said that they’ve used personal loans to support their businesses.

Richard Kateley, head of intermediary development at L&G said:

“SMEs form the backbone of Britain’s economy and are a vital source of employment for millions of people. Yet as our research shows, a significant proportion of these businesses across the UK are leaving themselves at risk from critical events.”

“The fundamentals of Britain’s economy might be strong, but there should be concerns over what would happen if these businesses were unable to pay their debts in the face of a financial shock such as losing a key person or business owner.”

Russell Brown, Head of Employment at Glaisyers solicitors added:

“Obviously employees leave for various reasons, whether it be a different challenge, more money or ill health, to name a few. Where the decision comes as a shock to an employer, one of the first things that tends to go through their mind is how long can they retain that individual’s services for in order to find a replacement and carry out an effective handover of their work to another trusted member of staff and, quite often, how can I stop them harming my business (where they are going to a competitor)?

These are matters which can be relatively easily addressed by having a suitably worded employment contract in place. This is the point in time at which contracts come into play. Quite often, both employers and employees do not attach enough importance to a contract of employment at the start of their relationship because they don’t envisage what could go wrong in the future. Appropriate provisions relating to notice, the ability to place on garden leave, restricting an individual’s activities and access to confidential information during their notice and limitations on what they can do once they have left your employment are all issues which can and ought to be addressed in the contracts for your key employees”.

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Russell is a Partner and Head of Glaisyers Employment Team. Russell is a specialist employment solicitor, providing commercially focused legal advice to both employers and employees. His practice covers all aspects of employment law including acting for clients involved in litigation in Employment Tribunals, the High Court and the Employment Appeals Tribunal. Russell is a frequent contributor to a wide range of employment law publications and is a regular speaker on the subject to both clients and the media. He is a member of the Employment Law Association.

Russell Brown - Partner

To discuss how glaiysers can assist you contact Russell Brown on [email protected] or via 0161 832 4666.

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