Article date: 22 April 2015
- Only 9% consult legal advisers while 13% use IFAs
- One in ten not sure whether they need to enrol their staff into a workplace pension
- A quarter of SMEs don’t know employers’ liability insurance is legally required once they have one employee
SMEs are failing to make use of expert advice when setting up their business, according to new research from Aviva*, leaving them vulnerable to costly mistakes. Two in five (38%) rely on advice from family or friends, while just 13% consult financial advisers, 9% use legal advisers and 6% turn to insurance providers.
SMEs found that the top three hurdles when setting up their business were financial administration (32%), marketing and sales (31%), and understanding and fulfilling legal obligations as an employer or business owner (30%).
All were areas that they had little or no knowledge of when setting up – three quarters of SMEs knew little or nothing about bookkeeping or marketing and sales. An even greater proportion (85%) said they knew very little about their legal obligations as an employer.
Having established their businesses SMEs say the top three hurdles that they have still not been able to overcome are marketing and sales (26%), getting financial help (18%) and understanding legal obligations as an employer (also 18%).
Employer obligations, for many businesses, will include overcoming hurdles like pension auto-enrolment for the first time. Whilst our research shows a third have done so already, one in five (21%) say they haven’t yet set up a workplace pension but know they need to at some point and over a third (36%) of micro employers (those with 1-5 employees) don’t think they need to. Along with its pensions schemes Aviva has created some helpful tips and advice about auto-enrolment and when to start thinking about setting up or preparing for their ‘staging date’.**
Angus Eaton, managing director of commercial lines at Aviva, said: “Making the time to balance the management of day to day customer, employee and supplier demands with protection against nasty surprises is a perpetual challenge for any business. Great advice helps.
“It’s only natural to want to consult with your family and friends but advice from professional experts can save time and money, helping small business owners with practical solutions, learnt from similar experiences in other businesses.
“Whether it’s getting hands-on help with bookkeeping, or getting to grips with the legal obligations associated with being an employer, there is a wealth of advice and material designed to support SMEs along every step of the way. Government resources such as those on the Great Business website - particularly for fledgling SMEs - are a great place to start."
Failure to understand legal obligations leaves SMEs at risk of breaching the law
Not being able to understand legal obligations as an employer or business owner is leaving some SMEs in danger of breaking the law.
Employers’ liability insurance is a legal necessity for the vast majority of businesses with staff however one in ten (11%) SMEs thought it wasn’t a legal requirement in any scenario. A quarter (25%) of SMEs also wrongly believe that employers’ liability insurance is only legally required once a business has more than one employee.
Employers’ liability provides vital cover should a member of staff make a claim for illness or injury caused by their job and it is a legal requirement. Failure to have it carries the risk of fines of £2,500 for every day the business is not properly insured***.
Almost nine in ten (87%) SMEs did not know that the minimum legal requirement for employers’ liability insurance is £5 million, with a fifth (19%) believing the minimum legal cover to be less than £500,000.
And it isn’t only employers’ liability insurance that some businesses are unsure of. When we asked about all types of business insurance less than a third (29%) of SMEs said they are very confident that they have the right cover, and one in ten (12%) admitted to having no business insurance at all. That is potentially leaving more than 600,000**** SMEs financially vulnerable should a claim arise.
However, it seems that the longer they are in business the higher the priority for insurance becomes. A quarter (25%) of SMEs that have been in business for less than a year have no insurance but this fell to 5% for more established businesses who have been operating for 8-10 years.
Eaton continued: “Clearly SMEs need a strong understanding of their legal obligations and how they can protect their business and employees to keep it trading - one claim without adequate cover could easily be enough to put severe financial pressure on an organisation or even close it down completely.
“It seems from our survey that the longer they are in business the more likely SMEs are to have taken out business insurance and my advice would be, don’t wait – make sure you have the right insurance from the start. Making the time to get the right advice and protection for your business could be the best investment you make so if you don’t already have one speak to your local broker as soon as you can.”
* Research was conducted online by RedShift among 1,507 SMEs in February 2015.
** For more information on auto-enrolment visit: http://www.aviva.co.uk/auto-enrolment-sme-support/
****According to Government statistics, there were 5,163,600 SMEs at the start of 2014 in the UK
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Notes to editors:
- Aviva provides life insurance, general insurance, health insurance and asset management to 34* million customers, across 16 markets worldwide.
- In the UK we are the leading insurer serving one in every four households and have strong businesses in selected markets in Europe, Asia and Canada. Our shares are listed on the London Stock Exchange and we are a member of the FTSE100 index.
- Aviva’s asset management business, Aviva Investors, provides asset management services to both Aviva and external clients, and currently manages over £245 billion in assets.
- Aviva helps people save for the future and manage the risks of everyday life; we paid out £24.6 billion in benefits and claims in 2014.
- By serving our customers well, we are building a business which is strong and sustainable, which our people are proud to work for, and which makes a positive contribution to society.
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* Before the deduction of overlapping customers.