CORONAVIRUS CRISIS HOLDS 620,000 SMES IN DISTRESS ENDANGERING 2.8 MILLION JOBS
Posted: 10 Feb, 2021
The latest Business Distress Index from Real Business Rescue has revealed the number of SMEs in significant distress* now stands at 620,000 an increase of 76,000 in Q4 2020, putting 2.8 million jobs under threat.
The website RealBusinessRescue.co.uk, set up by Begbies Traynor Group to advise business leaders in financial distress, analysed data from Red Flag Alert and discovered that since lockdown, 118,000 more SMEs have been plunged into distress – a 23% increase since Q1 2020. In the last quarter alone, there has been an increase of 14%, or 76,000 businesses in distress.
In addition to this, Real Business Rescue discovered that the number of start-up businesses (born after 2017) in significant distress soared by 21% in the last quarter due to the pandemic. There are now 131,000 of these fledgling businesses in distress – a 68% increase since the start of lockdown when there were 78,000 start-up businesses in distress.
These rapid increases in distress for such small and young companies is worrying when considering that the number of corporate insolvencies in 2019 was just 17,196.
Property, Hotels and manufacturing SMEs hard hit by coronavirus
Of the 620,000 SMEs in distress, Real Business Rescue analysis revealed that in the last quarter alone there was a 20% increase in real estate and property businesses (Q3 2020, 61,471 to Q4 2020, 73,756) putting 108,000 jobs in danger. There was also a worrying 19% increase in significantly distressed SMEs (Q3 2020, 6,148 to Q4 2020, 7,339) in the hotels sector where restrictions continue to impact, while significantly distressed SMEs also increased in support services by 16% (Q3 2020, 85,628 to Q4 2020, 99,281), manufacturing by 15% (Q3 2020, 20,289 to Q4 2020, 23,262) and travel and tourism by 14% (Q3 2020, 3,983 to Q4 2020, 4,554).
However, when it comes to job protection the order is switched. There are more than half a million (516,000) jobs held by the 99,000 support services businesses in significant distress, 349,000 people employed by 35,000 troubled health and education businesses, and 218,000 people employed by 79,000 construction SMEs.
Shaun Barton, National Online Business Operations Director at Real Business Rescue, said:
"Our latest Business Distress Index has tracked the troubles that smaller businesses find themselves in over this period. These SMEs and start-ups don’t have the resources to fall back on like the more established companies which have been able to rely on stronger cash flow to survive through this pandemic. Many will have been living from month to month or on a quarterly basis, and this is why they have been hit so hard.
“This latest data highlights that while bigger companies can thrive as the world moves towards greater investment in tech, logistics and construction, smaller organisations can still suffer as huge contracts are hoovered up by their bigger counterparts and the usually fruitful market of mid-sized contracts dries up. But this data is not just useful insight to see where businesses are being tripped up; it is useful to highlight where, who, and how small businesses need help. And it is vitally important that this help is given because without the millions of SMEs in the country, the UK will slow in its development of ideas and progress and the economy will further recess.
“These businesses need to get ahead of the game by considering restructuring action now so that when the creditors come calling, they are in a good space. We can offer help on RealBusinessRescue.co.uk or on the phone to talk through the options such as CVAs, administration, or Fast Track CVAs for companies that were in a good profitable position before the pandemic. Alternatively, there is a good market for investors and buyouts. The only thing that business owners have to be wary about is that these investors are looking for a good deal in a down market. It’s an option for an exit, and it could be a good one, but expectations will have to be lower than before the pandemic.”
Fledgling transport start-ups failing to fly
According to the insight, the number of fledgling businesses (born in 2017 or later) in significant distress in the telecoms and IT industry increased by 24% in Q4 2020 (Q3 2020, 5,454 to Q4 2020, 6,779) with an increase of 23% in the media sector (Q3 2020, 3,452 to Q4 2020, 4,231) and 22% in the sport and health club sector (Q3 2020, 1,984 to Q4 2020, 2,427)
These increases are even more stark since the start of lockdown. There are now 82% more telecoms and IT start-ups in distress than at the end of March, and 80% more transport and logistics start-ups in distress since the start of lockdown. Surprisingly, the number of start-ups in the bar and restaurant sector in significant distress has only increased by 54% making it one of the lowest increases across the 22 sectors - this is thought to be due to financial aid from government.
These large increases are also represented regionally with 26% more London start-ups falling into significant distress in the last quarter (Q3 2020 28,567 to Q4 2020 35,884). There was also a 21% increase for fledgling businesses in the north east (Q3 2020 2,257 to Q4 2020 2,742) and the south east (Q3 2020,18,021 to Q4 2020, 21,741).
Shaun Barton continues: "There is a wealth of talent and ideas in fledgling businesses and the business community knows this. This is why there will always be options for these companies, even buyout or investor involvement. We are advising these businesses daily and would recommend that they seek out all their options before making rash decisions. Even the biggest businesses restructure; it's just whether they do it correctly. The options are there; SMEs just have to take the leap."
1‘Significant’ distress is those businesses with minor CCJs (of less than £5k) filed against them or which have been identified by Red Flag Alert’s proprietary credit risk scoring system which screens companies for a sustained or marked deterioration in key financial ratios and indicators including those measuring working capital, contingent liabilities, retained profits and net worth.
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About Red Flag Alert
Red Flag Alert has been measuring and reporting corporate financial distress since 2004, and over that time has become an industry benchmark of the underlying health of companies across every sector and region of the UK.
Through its unique algorithm, the Red Flag Alert measures corporate distress signals, drawing on factual legal and financial data from a wide range of relevant sources, including intelligence from the UK’s leading insolvency business, Begbies Traynor. Please note that the Red Flag Alert algorithm was refreshed in Q3 2017 to enhance the risk factors analysed in the data. The reported results have been backdated to ensure consistency of comparative data.
The release refers to the numbers of companies experiencing ‘Significant’ problems, which are those with minor CCJs (of less than £5k) filed against them or which have been identified by Red Flag’s proprietary credit risk scoring system which screens companies for a sustained or marked deterioration in key financial ratios and indicators including those measuring working capital, contingent liabilities, retained profits and net worth.
Red Flag Alert is commercially available to all businesses, on an annual subscription basis, to help them better understand risk and exposure and help prepare them for the future. Further information about Red Flag Alert can be found at: www.redflagalert.com
Economically active businesses exclude those that are flagged by companies house as being, Non-trading, Listed for Strike off / Strike off pending, Insolvent or Dissolved. Companies where there is insufficient information available for RFA to assign a health rating are also excluded.
Begbies Traynor Group plc is a leading business recovery, financial advisory and property services consultancy, providing services nationally from a comprehensive network of UK locations. The group has 735 staff and partners and the professional staff include licensed insolvency practitioners, accountants, chartered surveyors and lawyers.
The group’s services include:
Business recovery and financial advisory
Corporate and personal insolvency - we handle the largest number of corporate appointments in the UK, principally serving the mid-market and smaller companies.
Corporate finance - buy and sell side support on private company transactions.
Financial advisory - forensic accounting and investigations, debt advisory, business and financial restructuring, due diligence and transactional support.
Property advisory and transactional services
Valuations - valuation of property, businesses, machinery and business assets.
Property consultancy, management and planning - building consultancy, commercial property management, specialist insurance and vacant property risk management, transport planning and design.
Transactional services - sale of property, machinery and other business assets through physical and online auctions; business sales agency; commercial property agency focussed on northern and eastern England.
Further information can be accessed via the group's website at www.begbies-traynorgroup.com/investor-relations
Keith Tully is a partner at Real Business Rescue Advisory. He specialises in advising large companies on turnaround and restructuring solutions. He is knowledgeable in an array of business-related topics but his specialities include acting on behalf of financial institutions and negotiating time to pay schemes with HMRC.
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