Under half of British small business owners regularly review their income protection whilst 17% admit to having no income protection at all, according to the Close Brothers Business Barometer.
10% of SME owners admit to not even considering the impact of losing regular income from their business when they retire.
In addition, less than 10% have not begun planning how to replace their current income in retirement with just 41% having a personal pension arrangement. However, 26% believe think they will need to retain a position in their business to ensure they continue to receive an income.
The lack of personal financial planning is more acute in smaller firms. For those businesses earning a turnover of between £750k and £1m, only 45% review their income protection regularly. In comparison, 58% of owners of businesses with a turnover over between £1m and £5m review their income protection regularly.
The research also reveals that those in the South West are least likely to have plans in place for income protection, with 43% admitting to not having considered the impact of losing their business income at all. The same number have not planned to substitute their income once they pass on their business. In contrast, 71% of those in the North West of England regularly review their income protection.
Patrick Haines, regional head of advice at Close Brothers Asset Management, said: “Personal financial planning might not be top of the list for busy business owners but devoting a small amount of time now can have a big payoff in the future. While it’s alarming to hear that so many have no planned source of income when they step down from the business there are some easy solutions.
Understanding the cost of your desired retirement lifestyle well in advance of passing on your business is crucial, and assessing your existing wealth and how you will gain future income is a key first step. The same principles apply for planning for the unexpected so income protection coupled with a personal investment plan should form part of the overall business strategy for any owner. The sooner this planning is in place, the better.”
