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.