Small business owners are putting their companies and livelihoods at risk by failing to follow basic business principles. They are failing to keep tabs on the company finances, follow an unstructured approach to decision making and run the risk of costly legal battles because they pay lipservice to HR.

The findings, in a study by insurance provider Simply Business, show that just under a third (29%) of SME owners said they are too busy running their business to keep track of their company's finances.

“Limited time and resources are characteristic of growing businesses,” said Simply Business’ chief executive, Jason Stockwood. “Many have become so focused on working in the business, that their time working on the business may have suffered as a result.”

On average they only review in detail balance sheets and profit and loss forecasts every 18 weeks. And despite the recession, which has left many suppliers and customers less robust then they once were, firms are failing to perform basic due diligence.

Nearly two thirds (65%) do not credit check new customers, while more than three quarters (76%) do not check existing customers requesting to extend their credit terms. In fact, 30% of firms have no formal contract in place for business customers at all.

Just over half (54%) of those surveyed have no written business plan, and a further 68% possess no detailed scenario plans for coping with unforeseen changes.

The same number rely primarily on gut instinct when making important business decisions, rather than on information and research.

Millions of SMEs are also risking costly legal action due to inadequate HR practices, claims the survey. 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 40% of firms have no formal, written HR policy while 46% have no formal health and safety policy.