According to the research, just 42% of the UK’s family-run businesses had any form of succession planning in place, with 51% of owners also willing to risk their personal wealth to secure their business after the death of a shareholder.
The insurer looked specifically at the impact of a critical event on different types of businesses across the UK, including family-run enterprises, and found that despite the lack of planning, 48% of family businesses rated the death or critical illness of the business owner as the highest risk to their operations.
The survey of over 800 small businesses found that without the necessary preparations, only 27% of family businesses would survive the transition to the second generation. The impact of the death or critical illness of a business owner was likely to be particularly hard, with 57% of family-run firms saying they would have to cease trading within a year and a quarter stating they would have to close their doors immediately.
In keeping with the lack of planning, Legal & General’s research showed a degree of uncertainty amongst family businesses about how they would manage the death of a business owner. One in five said they would expect shareholders to buy shares from the deceased estate, though it was not clear where the funding would come from. 17% expected to sell their shares to a third party, leaving uncertainty around the price they would achieve, whilst a fifth would have to close the business down.
Richard Kateley, Head of Intermediary Development at Legal & General, commented: “Family businesses have played an important role in Britain’s economy across the generations, but as these figures show, sadly many of them are ill-prepared for a critical event or even the transfer of ownership from one generation to the next.
With nearly half of these businesses rating the death of an owner as the highest risk to their operations, the UK’s family-run firms have clearly recognised the impact a critical event can have on their business, yet so many lack the necessary plans to help them manage the loss of a key person. The effects of the loss or critical illness of an owner or key person, who may be a mum, auntie, dad or uncle within a family-run business, is even greater than for a non-family business, as the emotional impact will have an even bigger effect on the running of the business.”
If we want to see Britain’s family businesses remain a staple part of the economy for generations to come, it is vital that the owners have clear plans in place regarding their succession, particularly when it comes to managing the impact of their death or critical illness. I would therefore encourage them to speak with a financial adviser, so that they can identify how each business protection policy can help them to manage the risks posed by the loss of a key person.”
