Firms Risk Failure as SMEs Sideline Business Basics

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More than half (54%) of SMEs have no written business plan. Two thirds (65%) do not credit check new customers. Over two thirds (68%) of entrepreneurs make decisions on gut instinct alone. Millions risk costly legal action over inadequate HR practices.

“Those entrepreneurs left standing have successfully managed their firms through the credit crisis, but can not now afford to expose their companies to easily avoidable risk.”


  •     More than half (54%) of SMEs have no written business plan
  •     Two thirds (65%) do not credit check new customers
  •     Over two thirds (68%) of entrepreneurs make decisions on gut instinct alone
  •     Millions risk costly legal action over inadequate HR practices

Millions of UK SMEs are unnecessarily exposing themselves to risk of failure due to weak financial management, an absence of basic business planning, uninformed decision-making and dangerously inadequate employment policies, new research reveals today.

The study, by business insurance comparator SimplyBusiness.co.uk, uncovers the startling levels of risk many entrepreneurs are taking in running their businesses, as they steer their companies out of recession.

Jason Stockwood, CEO of SimplyBusiness.co.uk, comments:

“Limited time and resources are characteristic of growing businesses, and the recession will have stretched UK entrepreneurs further than ever before - understandably, many have become so focussed on working in the business, that their time working on the business may have suffered as a result.

“Those entrepreneurs left standing have successfully managed their firms through the credit crisis, but can not now afford to expose their companies to easily avoidable risk.”

Risky Business

The first risk factor revealed by the SimplyBusiness.co.uk study is related to the financial management of SMEs.

Close to a third (29%) of SME owners admit that they are so busy running their business that they struggle to keep track of their company's finances.

Entrepreneurs review detailed balance sheets and profit and loss forecasts only every 18 weeks, on average.

In addition, despite the prevailing uncertain economic climate, firms are failing to perform basic due diligence on customers and suppliers.

Nearly two thirds (65%) do not credit check new customers, whilst more than three quarters (76%) do not check existing customers requesting to extend their credit terms.

In fact, a worrying 30% of firms have no formal contract in place for business customers at all.

Jason Stockwood comments: “One of the enduring legacies of the financial crisis is a trail of bankrupt companies forced out of business due to their inability to reclaim debts from insolvent customers and suppliers.

“The findings of this research would seem to suggest that there is a very real danger of history repeating itself among the SME community.”

Shooting in the Dark

The research points to a concerning absence of business planning among a large portion of SMEs, and an unstructured approach to decision making.

Remarkably, the majority (54%) of entrepreneurs have no written business plan, and a further two thirds (68%) possess no detailed scenario plans for coping with unforeseen changes in the operating environment.

More than two thirds (68%) of small business owners rely primarily on gut instinct when making important business decisions, rather than on information and research gathered ahead of the decision-making process.

Indeed, only around half (56%) perform first hand market research, or consult the company accounts (54%) when making significant business decisions.

Labour Court Looming

Finally, millions of SMEs are running the risk of costly legal action due to inadequate HR practices.

Amazingly, over a fifth (21%) have no formal contracts for their permanent employees and 79% have no dedicated person to handle HR operations.

This is reflected in the fact that approaching half (40%) of firms have no formal, written HR policy while a similar proportion (46%) have no formal health and safety policy.

Jason Stockwood comments: “Small businesses are subject to just the same strict labour laws as big businesses but would be a lot less capable of weathering costly legal action.

“It is vital small business owners have the necessary employment structures and guidelines in place to protect their businesses.”

About the Study

The independent market research was conducted among 400 British entrepreneurs that own and run a small business of less than twenty employees.

About SimplyBusiness.co.uk

SimplyBusiness.co.uk, the UK’s leading online business insurance comparator, is insurance broker to some 130,000 small and micro businesses across the UK, helping SMEs to quickly find the right product, such as public liability insurance, by enabling them to compare multiple quotes online.

With more than 10,000 followers on Twitter, SimplyBusiness.co.uk has its finger on the pulse of the UK SME sector.

http://www.simplybusiness.co.uk

http://www.simplybusiness.co.uk/insurance/

http://www.simplybusiness.co.uk/insurance/public-liability

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David Mercer

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