The Demographic Time-Bomb

In Novem­ber 2012 the Econ­o­mist Intel­li­gence Unit under­took a sur­vey, on behalf of Zurich Insur­ance, of over 500 small busi­ness­es to explore what SME’s thought about the eco­nom­ic land­scape and how they were adapt­ing to sur­vive and suc­ceed. The sur­vey iden­ti­fied that near­ly 60% of UK SME own­ers aged 60 or more were not deal­ing with their retire­ment and only 36% of SME own­ers had a clear suc­ces­sion plan for their business.

The ​“Baby-boomer” gen­er­a­tion are those born in the years imme­di­ate­ly after World War II and up until about 1960. They now form a very large pro­por­tion of SME busi­ness own­ers and man­agers in the UK and the first of them came up to tra­di­tion­al retire­ment in 2011. Whilst retire­ment may not be a pri­or­i­ty for many of these for active and entre­pre­neur­ial peo­ple, the increas­ing age does have impacts on their busi­ness and by def­i­n­i­tion the SME econ­o­my in the UK. 

In their 2016 report, For Love or Mon­ey, accoun­tan­cy firm Haines Watt not­ed that 40% of UK busi­ness own­ers planned to retire before the age of 65 with 14% plan­ning to retire before the age of 60%. Yet a third (32%) did not have a pen­sion fund, while the aver­age total pen­sion fund for a UK busi­ness own­er is just under £110,000. It’s clear that many busi­ness own­ers, whilst recog­nis­ing the inevitabil­i­ty, are not doing enough to pre­pare for the future or are rely­ing on their busi­ness to secure their retirement. 

So how secure are these busi­ness­es? The Haines Watt sur­vey high­light­ed the frag­ile nature in which many SME’s oper­ate, with many rely­ing on a sin­gle cus­tomer or sup­pli­er or a key indi­vid­ual to keep the busi­ness run­ning. As many as 50% of busi­ness own­ers report­ed hav­ing a main sup­pli­er they could not sur­vive with­out, 50% also rely on a key mem­ber of staff, while over 40% report­ed as hav­ing a major cus­tomer they rely on. An alarm­ing 78% said that their main cus­tomer con­tributed 30% or more of their month­ly revenue. 

If this was not wor­ry­ing enough, 50% of busi­ness own­ers felt their com­pa­ny would not sur­vive for a week or less with­out them Not only are busi­ness own­ers not prepar­ing for retire­ment, they are not prepar­ing for the unex­pect­ed event that may dis­rupt their abil­i­ty to con­tin­ue work­ing in the business! 

A busi­ness that is not robust enough to sur­vive a change of own­er is unlike­ly to be attrac­tive enough for poten­tial buy­ers, or to be in a posi­tion to be hand­ed over to a cho­sen suc­ces­sor, with­out sig­nif­i­cant work. Busi­ness own­ers depend­ing on their busi­ness to fund their lat­er life need to start plan­ning their busi­ness exit now to avoid disappointment.