Small businesses and SMEs are a huge part of the UK economy, with research showing there were approximately 5.7 million SME businesses across the UK at the end of 2018. This comprises over 99% of all UK businesses – by contrast, large businesses (organisations with over 250 employees) only account for about 0.1% of all UK business, making SMEs an essential cog in the financial system.
It’s important to understand how your business should be defined, as the rules around this differ from country to country and could affect the level of commercial insurance you should have in place to protect your investment. Not only that, but the size of your business could also affect whether you’re eligible to apply for specific government grants and funding, as well as the tax implications attached to your enterprise.
If you’re unclear on whether your business can be defined as an SME, here are a few definitions that might help:
Definition of an SME
SME stands for ‘small or medium-sized enterprise,’ and are businesses that have under a certain number of employees – in the UK, this is defined as less than 250 employees. SMEs make up the majority of the UK’s workforce, and need to meet two of the following three criteria to be defined as an SME:
- A turnover of less than £25 million
- Fewer than 250 employees
- Gross assets of less than £12.5 million
SMEs can then be split down into the following business sizes.
Definition of an micro-enterprise
A micro-enterprise is a small business employing nine people or fewer. There are currently approximately 5.4 million micro businesses across the UK, accounting for 96% of all UK businesses at the end of 2018. Interestingly, just under three quarters of these businesses are run from the owner’s home rather than an official business premises.
If this is the case for your business, it’s worth speaking to your home insurance provider to make sure your property is covered for business use. This will likely depend on the type of business you’re running – they’ll probably be less concerned by advisory work, such as management consultancy, but may place restrictions on your cover if you are, for example, setting up a carpentry business out of the garage.
However, even if your business is covered under your home insurance from a material perspective (for your commercial contents, buildings, public liability etc.), you may still require commercial insurance to cover the other risks involved with running your business. For example, if you offer support or advice to the public, you may require professional indemnity insurance in place to protect yourself against misadvise or claims of professional negligence.
Definition of a small business
A small business is defined as a business employing between 10-49 people. There are currently approximately 210,000 small businesses across the UK, accounting for 4% of all UK businesses at the end of 2018.
Definition of a medium-sized business
A medium-sized business is defined as a business employing between 50 - 250 people, with a turnover of between £25 million and £500 million per year. Essentially, medium-sized businesses have grown past the size of the micro or small businesses, but haven’t quite reached the lofty heights of the large enterprises, such as Shell, BP or Legal and General Group, three of the most profitable businesses run out of the UK.
There are currently approximately 35,000 medium-sized businesses across the UK, accounting for 1% of all UK businesses at the end of 2018.
How will the size of your business affect your commercial insurance?
There are a number of things you should consider before taking out commercial insurance for your SME. If in doubt, speak to an experienced broker who will be able to advise you on the right cover for any specific risks associated with your industry.
Here are a few basic considerations so you can start to assess your commercial insurance needs:
1. How many employees do you have?
The number of employees you have could affect the level of employers’ liability insurance you need in place. The minimum legal requirement for employers’ liability is £5 million, and you could be fined up to £2,500 for every day that your business isn’t appropriately covered. Employers’ liability insurance protects you against the cost of defending or settling claims that arise from employee injury or illness in the workplace.
Remember, even if your business only operates with work experience staff or volunteers, you still owe them the same duty of care as paid employees, and so will still need to have employers’ liability insurance in place.
2. Is there a risk to the public?
Similarly to employers’ liability insurance, if your business interacts with the public, you will need public liability insurance in place to protect yourself against possible compensation claims.
It’s important to furnish your insurance provider with as many details of your commercial activities as possible, as some insurers may automatically exclude specific business types, such as tattoo studios due to the increased risk of liability claims.
You may also need product liability cover in place to protect your business against claims for injury or damage resulting from a product sold by your business. This also applies if you’re preparing food for public consumption.
3. Your annual turnover and the value of your business assets
Just as with any other type of insurance policy, the higher the value of your business assets, the more coverage you’ll need to protect them. If you hold large volumes of cash on site, for example, you may want to consider money cover as part of your commercial insurance solution. Equally, if you have large amounts of stock or increase the levels of stock you hold at your premises dependent on the season, then you’ll want to check that your insurance policy accounts for these seasonal increases.
4. Do you hold confidential customer data?
No organisation, big or small, is immune to a data breach, and instances of cyber crime have risen dramatically in recent years. If your SME holds sensitive customer data, not only is it important to make sure you’re adhering to all relevant legislation, such as the General Data Protection Regulations (GDPR), but you should also consider including cyber insurance as part of your commercial insurance package to protect yourself from the potential reputational and financial fallout of a data breach.
If you’d like to speak to one of our knowledgeable account executives to develop a commercial insurance portfolio shaped to your needs, please get in touch on 0333 234 1358.