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Sole traders failing to plan for death or incapacity

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Two thirds of sole traders have no plans for their business in the event that they become incapacitated or die, according to the latest findings from Barclays Financial Planning.

The survey highlights a stark lack of awareness amongst business owners of the complexities of inheritance tax planning and the potential emotional distress the failure to plan for such events can have on a family. 25% of all business owners aged over 55 have yet to make any plans for the future of their business, 47% claim they have not made plans because it is ‘too soon to think about it’.

Despite not making any provisions to address the issue, 66% of business owners with no plans in place claim they would not want their business to close should they pass away or be unable to work, suggesting that many are in the dark as to the options available to them.

The research forms part of an ongoing study into the awareness and views of owners of small and medium businesses on retirement and succession planning. Key findings of the survey are as follows;

Key findings

• 46 per cent of the business owners surveyed claim they have no plans in place should they, or a shareholder, die or become incapacitated.

• Business owners are more likely to have plans for their business should they die or become incapacitated if they have a business partner. Those working in a partnership are most likely to have plans, at 71 per cent. This compares to 63 per cent of owners of family run companies who have made plans for their company and 55 per cent of owners of limited companies.

• It is not just owners of smaller businesses who have failed to make plans. While 57 per cent of those with a turnover of less than £1m have no plans, 29 per cent of owners of companies that turnover more than £1m each year have no strategy in place should they become unable to work.

• One in three (32 per cent) respondents claim they plan to retire when they are over 65 years old, or that they never plan to give up work. Despite the ambitions of this group, 38 per cent are failing to make any plans for the future.

• Despite the confusion and burden that can be caused to a family if the necessary plans are not in place when a loved one dies, 45 per cent of business owners who have children have no strategy for their business in the event of their death or illness.

• It seems that the older the business the more likely owners are to have plans in place. 64 per cent of owners of businesses that are more than 20 years old have plans in place. This compares to 40 per cent of those with businesses that are under five years old and 55 per cent of those who’s company is between 5 and 20 years old.

Reasons for lack of planning

• The majority of owners claim they have no plans in place because it is purely ‘too soon’ to think about the future (47 per cent). 45 per cent claim they are looking to see how the business fares before they decide its future.

• 19 per cent of owners say that they are waiting until they are approached by someone wanting to buy them out before they make any plans.

• 27 per cent claim they are waiting to see how the business fares and if it increases in value before deciding on their plans for its future.

• The research indicates that the future is a taboo subject for many owners who are loathe to discuss the future of their business. 4 per cent don’t want to broach the subject with their family (this rises to 11 per cent amongst owners of family run businesses), 4 per cent don’t want to discuss this with other shareholders and a further per cent are waiting to see if any of their other shareholders buy them out before they decide the future of their shareholding.

Stephen Ingledew, Commercial Director, Barclays, said; “We have found that there is a real lack of awareness amongst business owners of the importance of putting the right plans in place in the eventuality that they die or become incapacitated. It is concerning that so many owners – and particularly those who work alone and have no obvious successor who could keep the business ticking over in their absence – are leaving the future of their business and that of their family or business partners to chance.

"Business protection is a necessary element of financial planning for owners of small businesses and their families and employees. We would urge owners, regardless of the size or age of their business, to seek advice so they can get a clear understanding of the options that are available to them so the can enjoy their business and rest assured that the future of them and their family is secure.”

Posted April 13, 2007