620,000 SMEs in financial distress, new study reveals

According to Real Business Rescue’s latest Business Distress Index, the number of UK SMEs in significant financial distress is now 620,000, representing a 14 per cent increase (76,000 businesses) during Q4 2020.

Real Business Rescue, which is part of the Begbies Traynor Group, analysed data from Begbies Traynor’s recent Red Flag Alert, which BSR reported on here to calculate its figures. The Q4 2020 figure shows that 118,000 SMEs have fallen into significant distress since the first lockdown, with a 23 per cent increase from Q1 2020.

The latest Business Distress Index also found that the number of fledgling SMEs (those started after 2017) experiencing significant financial distress increased 21 per cent in Q4 2020, with 131,000 fledgling SMEs in distress. This is compared to 78,000 at the start of the first lockdown – a 68 per cent increase.

Looking at individual sectors, real estate and property saw a 20 per cent increase, from 61,471 distressed SMEs in Q3 2020 to 73,756 in Q4. The hotel sector, meanwhile, continues to be severely hampered by COVID-19 restrictions and saw a 19 per cent increase, from 6,148 in Q3 to 7,339 in Q4.

The support services sector experienced a 16 per cent jump from 85,628 in Q3 to 99,281 in Q4, distress among manufacturing SMEs leapt 15 per cent from 20,289 in Q3 to 23,262 in Q4, while travel and tourism jumped 14 per cent, from 3,983 in Q3 to 4,554 in Q4.

Real Business Rescue’s National Online Business Operations Director Shaun Barton commented: "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.”

Barton added: “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.”

"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."

Echoing findings from other recent studies, the Business Distress Index also revealed that the number of corporate insolvencies fell 27 per cent during the year, from 17,196 in 2019 to 12,557 in 2020. It is thought that many struggling businesses are being propped up by government support schemes.


View the latest distressed UK businesses here.

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