The Age of Business Distress

260,000 start-up businesses fall into financial distress by the age of seven as night-time economy vulnerability exposed

• More than half (260,000) of the 509,000 UK businesses currently in distress are seven or fewer years old
• Highest numbers of distress found at four years – 54,000 businesses in significant distress
• Businesses aged between four and seven have an 18% chance of being in distress
• Night-time economy start-ups in their fourth and fifth years at greatest risk - 39% of bars and restaurants and almost a third of hotels and accommodation in significant distress at this time
• Welsh start-ups the most vulnerable to failure in the early years - 21% of Welsh businesses most likely to fall into distress in their fourth year, compared to just 14% of Scottish businesses
   

More than a quarter of a million start-up businesses have fallen into significant financial distress by the age of seven with businesses aged between four and seven in distress at a rate of one in five, according to data from business leader advisor, Real Business Rescue.

The website RealBusinessRescue.co.uk, set up by Begbies Traynor to advise business leaders in financial distress, analysed data from 3.7 million economically active businesses from the Red Flag Alert to find out when, where and in what sectors start-ups were most vulnerable to significant financial distress.

It found that more than half (260,000) of the current 509,000 businesses in significant distress were aged seven or under. It also found that businesses were in greatest danger during their fourth year when 54,000 businesses are in distress – the largest number across all timelines.

However, the risk of financial difficulties still remained well into the seventh year of a start-up’s existence with one in five (18%) economically active businesses going through the ages of four to seven experiencing significant financial distress.

Start-ups in the night-time economy and energy vulnerable to distress

The data from RealBusinessRescue.co.uk also investigated sectors, finding that start-ups in the night-time economy were at greatest risk of distress. In their fourth and fifth years two in five (39% yr4, 39% yr5) start-ups in the bar and restaurant sector had fallen into significant financial distress, with almost a third of those in hotels and accommodation (29% yr4, 32% yr5) during the same years suffering problems of distress.

Outside of these sectors only food and beverages (29% yr4, 29% yr5), food and drug retailers (28% yr4, 29% yr5) and utilities - not reaching peak chance of distress until the seventh year at 32% - come close.

However, in terms of volume by the age of four 21,947 support services start-ups, 21,759 real estate and property start-ups and 15,410 construction start-ups are in distress. These are significantly higher numbers than the 6,944 bars and restaurants and 1,600 hotels and restaurants that have fallen into distress within four years.

Welsh start-ups most likely to fall into distress in their early years

Whilst all start-ups across the UK run a gauntlet of financial danger from their fourth to eighth years, Welsh start-ups are the most likely to fall into distress with one in five (21% yr4, 20% yr5, 20% yr6, 20% yr7, 20% yr8) going through these years of their existence in distress. However, while the new businesses that survive become stronger and less likely to fall into distress later in life, the story is slightly different in Scotland. Businesses in Scotland are marginally more likely to fall into distress with peak risk reached at 14 years (16% of Scottish businesses of this age in distress).

In terms of numbers, by the age of four start-ups in London, the South East and the Midlands are showing the most concerning figures of distress. Almost 35,000 businesses in London under the aged four or under are in distress with almost 23,000 in the South East and 16,000 in the Midlands suffering in this age bracket.

Shaun Barton, National Online Business Operations Director at RealBusinessRescue.co.uk, said: 

“During the coronavirus pandemic, and subsequent lockdown, we have been receiving a high volume of calls from business owners seeking help as their businesses struggle. We have found, and as this data shows, it is the youngest businesses in the UK that are at the greatest risk. It’s also these businesses that are the heartbeat of the nation’s economy supporting jobs and supplying larger businesses. For these reasons we must find additional ways to assist them outside of government assistance.

“From our Red Flag Alert we know that 509,000 businesses are in distress. The most worrying fact is that 504,000 of these businesses are SMEs and 260,000 of these have been operational for less than four years. This demonstrates just how much danger these fledgling businesses are currently in.

“Talking to the leaders and owners of these businesses we know that due to their size they will often be talented in the creation and ideas of business solutions for their customers, but they simply don’t have the time or resource to seek intricate routes to staying afloat during this difficult time. Start-ups need to be given more information about accessing loans, small pieces of legislation, protection for workers or the administration process that can help them. Those at the top rarely have someone within the business to turn to for explanation on these matters as the buck stops with them – that’s what the RealBusinessRescue.co.uk confidential service, which we are offering free at this time, was created for.

“The key sectors at risk need attention. Construction and property sectors are certainly in distress but also businesses in the night-time economy, especially as they deal with closure during the period of lockdown. In recent years the growth of this industry has been significant becoming the fifth largest industry in the UK, accounting for 8% of employment in the UK and generating £66bn of revenue a year2. As a result, it has become a pillar of the UK economy and will be expected to support millions of workers after lockdown, but extended social distancing long after lockdown ends could force it to operate at a maximum of 60% capacity. With these wolves at the door, and without the right measures, these businesses may not be here when the country returns to its new norm.

“With such a significant percentage of these businesses feeling distress before their fourth birthday, we are delivering advice and aiming to give them the help they need before, during and after this crisis on our website and through calls.”

For more information and detailed content on accessing help for business please visit https://www.realbusinessrescue.co.uk/business-distress.

To view the Q1 2020 Infographic, Click Here →