In the March Budget the government extended Entrepreneurs’ Relief, a tax break to encourage longer-term investment in unlisted companies, underlining the belief that small business owners are pivotal to Britain’s economic recovery…
It’s a belief built on evidence. In the latest Hiscox DNA of an Entrepreneur report (September 2015) – an annual study reflecting the views and experiences of 4,000 small business owners and managers in Europe and the US – 51 per cent of entrepreneurs surveyed plan to introduce a new product or service in 2016.
Revenue up, confidence rising
So what’s the reason behind this feel-good factor? One reason is positive revenue growth. Around two-thirds of firms (65 per cent) surveyed by Hiscox had increased their revenue with 25 per cent reporting double-digit expansion (up from 16 per cent over the previous 12 months) and the proportion seeing double-digit growth in their order book rising from 15 to 24 per cent.
Unsurprisingly, it’s the new entrepreneurs on the block who are most upbeat about the future. Owners and managers of businesses set up since the downturn in 2008 are significantly more optimistic about their prospects than those in charge of more established companies (70 per cent for post-recession firms compared to 59 per cent for older businesses).
Storm clouds ahead
So, the vibrant entrepreneurial sector of the economy is picking up the pace. A healthy 64 per cent of UK small businesses and entrepreneurs questioned are confident about their prospects for the year ahead. However, potential blockers to success were voiced around late payment and access to credit, coupled with unnecessary exposure to uninsured risks.
Despite various initiatives, access to credit is still difficult. Nearly a fifth of respondents (19 per cent) think that bank finance has become harder to access in the past 12 months. Most concerning, though, is that 15 per cent have used their credit card to help fund a business in the past year – and a further eight per cent are thinking of doing so. Only three per cent have raised money through crowdfunding or peer-to-peer lending.
Late payment is another problem with just over a quarter (27 per cent) saying they are affected by clients not paying on time – despite repeated government efforts to tackle the issue. Tax and bureaucracy also continue to be key bugbears, while more than half of UK small businesses and entrepreneurs (55 per cent) do not believe the government’s policies are supportive of entrepreneurs.
New opportunities, new risks
Some risks also increase as business improves. One in five firms (22 per cent) say they are hiring new staff, with 10 per cent looking for juniors and nine per cent taking on apprentices or interns. An expanding payroll can lead to a greater potential for human resource and liability issues. Increased growth also brings other potential risks such as the requirement for new or bigger premises and more IT equipment.
These are all potential financial liabilities and should be appropriately insured, although the Hiscox survey shows that fewer than half (47 per cent) take out buildings and/or contents cover. Even fewer buy public liability cover (44 per cent) while there has been a sharp fall in the numbers with cover for personal accident (38 per cent) and employers’ liability (29 per cent). While one in five owners and managers (19 per cent) say they do not have any insurance at all.
Hiscox and the right protection
A fifth of respondents also don’t know whether they have insurance cover for the areas where claims are most common in the small business arena: negligence, breach of duty of care, and infringement of intellectual property rights. Innovation in their products and services is the lifeblood for many entrepreneurs and small businesses. It’s what they enjoy and what can, almost overnight, turn a small business operating out of a back bedroom into a white-hot start-up. However, it also carries greater professional risks if things don’t go well and clients don’t receive – or claim they don’t get – the product or service they were expecting. It’s why insurance protection such as professional indemnity (only bought by 43 per cent of Hiscox’s survey respondents) can be critical.
Professional indemnity cover, as well as providing protection if a business or individual is sued for negligence, for example, also allows small companies and entrepreneurs the freedom to take more risk than they might do if they knew that a mistake would lead to costly legal bills, loss of fees, and even going out of business. For any small firm or entrepreneur, where taking risk is part of their very DNA, the right protection is worth the investment.
IoD members receive a five per cent discount on Hiscox business insurances. To protect your company, visit hiscox.co.uk/iod or call 0800 280 0354.