Richard Kateley says the gender gap is still alive and well when it comes to business protection, and urges financial advisers to rethink their approach.
March 2015 saw the launch of Legal & General's latest research into the state of the SME market. The research explores the level of awareness that business owners have (or not, as the case seems to be) of the need for business protection.
Whether that is to cover the risks of losing a key person whose loss could put terminal pressures on their businesses bottom line through loss of profits, to covering the more obvious risks, such as their commercial debts and loans; or indeed to protect the ownership of the business if a business owner was to die, and making sure that the business can retain control of their business while still ensuring that the relatives get a fair value for their shares.
For the first time in the six years we have been doing this research, we have explored the sometimes prickly subject of gender.
We wanted to understand whether the gender make-up of a business's ownership affected how a SME was advised by their professional connections be that their bank, financial adviser, or indeed their accountant. Also, how they themselves perceived risks to their business.
I can report that the gender gap is alive and well when you start looking at some of the differences between all-male- and all-female-owned businesses across the UK in 2015.
If you look at corporate debt as an example, solely female-owned businesses are among those least likely to have insurance in place to repay the borrowing should a key person die or become critically ill; with 42% saying they have no policies in place to cover such an event compared with mixed-sex ownership (29%), or solely male-owned businesses (30%).
This may, in part, be down to the fact that of the 800 businesses we interviewed while doing our research, solely female-owned businesses on average were smaller than those solely owned by men. They may therefore not have considered protection as vital to their business.
Small business more at risk
In reality, of course, the reverse is true, and in fact this could increase the need for cover. Smaller businesses tend to be most at risk from a key member of staff or owner becoming ill or dying, because they do not have the depth in human capital to help fill the gaps or the spare capital to ride out the effect this loss could cause to their turnover.
The main reason that I can see for this difference is really down to advice, or lack of it, given to or indeed sought out by all female businesses. Our research has highlighted that:
• Female business owners are less likely to be recommended life cover to protect their business borrowing by the bank that arranged their finances than their male counterparts. The research revealed that cover was never mentioned to 41% of female business owners, whereas for males it was mentioned 70% of the time.
• That only 35% of all female-owned businesses had a financial adviser compared with 49% for all companies and only 62% had an accountant, compared with 82% for men.
• For personal life assurance only 40% of all business owners have any cover, but for female business owners it is even lower, at only 28%.
• Amazingly, 92% of female business owners said that they did not have a personal financial adviser. Other interesting differences also were exposed in the research, which may be more down to how men and women assess risks.
• When asked what would have the most effect on their businesses survival, female owners were more concerned with their business premises either burning down (66% put this in their top three, as opposed to only 54% for males), or being broken into (41%, compared with just 18% for men).
• When it came to the death or critical illness of a key person or business owner, men rate this much higher in their top three risks to their business. A business owner suffering a critical illness would appear to have a larger impact, with male-owned businesses (37%, compared with only 26% for females), and the death of a business owner (45% compared with 36% for females).
• For those all-female run businesses that have taken out business loan protection, 78% did so because they were advised to do so by either a financial adviser or their bank, which although high, is less than their all-male counterparts, with an amazing 89% only taking it out because they were advised to do so.
The female-only SME is a big part of this market, with 18% of all UK SMEs being female-led and the industries they operate in may not be the ones that you assume.
In our sample professional and business administration equated to 27% of female only businesses followed by healthcare 19%, accommodation and food 17% and 10% in education.
Further findings from the research revealed that female small business owners are also more likely to be sole traders, with 52% of the businesses owned by women in this group, compared with only 19% of all small businesses, which could be a reflection of the higher proportion of new businesses being formed by females.
In addition, a higher proportion having been created in the past two years (26%), compared with an overall figure of 11% for all businesses.
In view of these details these businesses are even more reliant on the skills of a small number of key people, with 38% saying they would cease trading immediately following the death or critical illness of a key person, compared with an overall figure of 18%.
However, female businesses are least likely to have considered insuring their key people with 69% (compared with an overall figure of 57%) having no cover. Of these almost six in ten (57%) had never considered it.
Advisers' bread and butter
We all know that gender should no longer be a differentiator in any walk of life, let alone business ownership, but our research implies that unfortunately it still is.
These facts highlight there is a real need for advisers to help educate and work with female business owners as well as their male counterparts on the risks they face by not having adequate cover in place.
I believe the opportunity for advisers in this market are huge. Again referring back to our research circa 82% of SMEs have accountants, compared with only 49% who have a financial adviser.
When asked, the vast majority of business owners said that they would want to hear about business protection from either their accountant or financial adviser as opposed to their bank, networks or insurance companies.
With the right knowledge, businesses are better placed to make the right decisions in protecting themselves against certain unexpected events. This begins with adviser/client conversations and properly evaluating the risks a business faces, which is bread and butter to financial advisers.
The other great story in our new report is that there is not the apathy that you might expect from business owners towards business protection.
When we asked business owners who did not have any protection in place, be it for loan, profit or ownership, the reasons given were not down to the cost or negativity towards protection but more that they did not see the need for it, they had not considered it or no one advised them that they should have it.
As with most things in life it comes down to communication and simply advice.
It reflects, for me, what was the biggest finding in our research, which was irrespective of age gender or business type, of those small business owners who had taken out protection, 78% of all females businesses and 89% of SMEs in total did so because they were advised to do so.
Thus demonstrating the real need for professional financial advice in this market and the role financial advisers can play in getting SMEs business assured in 2015.
For a full copy of the report, click here to visit our Business protection website.
Richard Kateley is head of specialist protection at Legal & General