COVID-19 has strongly affected the global population, but how badly has it affected the future of British SMEs and the British economy as a whole? Research from Real Business Rescue (part of the Begbies Traynor Group) shows surprising results.
The latest Business Distress Index from Real Business Rescue has revealed that the number of SMEs in significant distress now stands at 620,000. Since lockdown started in Quarter 1 (Q1) of 2020, 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.
‘Significant’ distress is defined as those businesses with minor County Court Judgements (CCJs), which are judgements of less than £5k filed against them, or businesses which have been identified by Red Flag Alert’s proprietary credit risk scoring system. This system 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.
Additionally, Real Business Rescue discovered that the number of start-up businesses (those formed after 2017) in significant distress soared by 21% in the last quarter. Currently, there are 131,000 of these fledgling businesses in distress - a 68% increase since the start of lockdown in March 2020, at which point only 78,000 start-ups were in financial distress.
However, despite these increases in distress for many companies, the number of corporate insolvencies dropped by 27% in 2020, with 12,557 insolvencies compared to the 17,196 in 2019. This can largely be attributed to the UK government’s COVID-19 support schemes, which are helping to keep many troubled businesses afloat.
1. London (26% increase)
2. The South East (21% increase)
3. The North East (21% increase)
4. Northern Ireland (20% increase)
5. The Midlands (19% increase)
Wales has seen the smallest increase in distressed business, but even they have seen an increase of 16%.
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