Should SMEs be worried by their reliance on friends and family?

As new research reveals that two-thirds of the UK’s smallest businesses rely on support from friends and family to stay afloat, how concerned should they be?


According to Lloyds Bank Insurance, a growing level of red tape and employment bureaucracy is behind the issues faced by these firms.


These problems mean business owners are not prepared to hire new staff and are instead turning to friends and family for help.


An average of six hours a week are being given up by relatives of those owning microbusinesses – deemed as firms with fewer than ten staff – to provide various types of support.


This includes anything from managing social media and other online accounts to providing childcare or guidance.


Although four-in-ten of business owners seeking assistance were paying an average salary of £14 per hour to those helping them, more than half were relying on unpaid support.


As a result, the UK’s family support economy could be worth nearly £65 million a week; although the situation could worsen following new plans to raise the national minimum wage to £7.20.


For business owners who already lack the finances to pay additional staff, it could increase reliance on unpaid assistance from friends and family members yet further.


Not only does this impact on the lives of those around them, it could also lead to stress and further pressures on business finances.


This business model is not necessarily developed towards long-term success and these very small firms could be left in difficulty at a time when they are most vulnerable


Around half of start-ups struggle to survive the first five years of trading, meaning business insolvency is a real possibility without the help that is needed.


Plan to increase the minimum wage even further by 2020 could bring its own set of problems, especially among those trying to operate on a very small scale.


Plenty of prior planning and financial management is required in order to ensure that these issues do not persist.


For those relying on friends and family at this stage, it is worth considering if business operations could be changed so as to reduce dependence and to create a firm that can support itself in the long term.


By Phil Smith


If you would like to have a free no obligation chat with one of our advisers please call us on 0207 186 1144.

View all Business Insights