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The Business Distress Index Q1 2021

Written by: Keith Tully

Business Distress Index Q1 2021 – Number of SMEs in financial distress continues to climb

The latest Business Distress Index data from RealBusinessRescue.co.uk has revealed the number of SMEs in significant distress* now stands at 713,505; an increase of 93,291 in Q1 2021, putting over 3.2 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, a further 211,037 SMEs have been plunged into distress – a 42% increase since Q1 2020. In the last quarter alone, there has been an increase of 15%, or 93,000 businesses in distress.

In addition to this, RealBusinessRescue.co.uk discovered that the number of start-up businesses (born after 2017) in significant distress soared by 33% in the last quarter. There are now 174,000 of these fledgling businesses in distress – a 124% increase since the start of lockdown.

Last quarter sees transport, construction and professional services SMEs come under increased pressure

Of the 714,000 SMEs in distress, RealBusinessRescue.co.uk analysis revealed that in the last quarter alone there was a 24% increase in transport & logistics businesses (Q4 2020, 15,112 to Q1 2021, 18,695) putting 82,835 jobs in danger. There was also a worrying 21% increase in significantly distressed SMEs (Q4 2020, 79,510 to Q1 2021, 96,067) in the construction sector, whilst distressed SME numbers also increased in professional services by 20% (Q4 2020, 44,716 to Q1 2021, 53,570), placing over 143,000 jobs in jeopardy.

However, when it comes to job protection the order is switched. There are more than half a million (563,000) jobs held by the 111,000 support services businesses in significant distress, 349,000 people employed by 41,000 troubled health and education businesses, and 218,000 people employed by more than 79,000 construction SMEs.

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

"The latest Business Distress Index has tracked the continued troubles that smaller businesses have found themselves in and highlights the impact of the latest national lockdown imposed in early January. Most 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. Certainly, many will have been existing on a month to month or quarterly basis and the early 2021 national restrictions have compounded the overall effect of a very challenging past twelve months.

“This latest data highlights that important economic sectors such as construction, professional services and logistics are not immune to the wider socio-economic issues that are challenging society and the financial strength of the nation. It should be a stark reminder that the fallout of the pandemic is still to peak and, despite the unlocking roadmap that is underway, for many SMEs the coming year will continue to present many challenges.

“As a result, some 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 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.”

Start-up transportation businesses hit hard in Q1 2021

As seen with SMEs, according to the insight, the number of fledgling businesses (born in 2017 or later) in significant distress in the transport & logistics sector increased by 60% in Q1 2021 (Q4 2020, 3,430 to Q1 2021, 5,485) with an increase of 51% in the printing & packaging sector and 45% in professional services start-ups (Q4 2020, 6,825 to Q1 2021, 9,883)

Big increases across some sectors have been stark since the start of the first lockdown in March 2020. There are now 188% more transport & logistics start-ups in distress than a year ago, and 169% more professional services start-ups in distress.  This is echoed in both construction and financial service start-ups also, with both seeing a 155% increase in start-up financial problems when compared with twelve months ago.

Shaun Barton continues: "Despite the current issues facing all start-ups, there continues to be wealth of talent and ideas in fledgling businesses and the business community knows this. This is why there will always be options for such companies, even buyout or investor involvement. We are advising these businesses daily and would recommend that they seek out all their options before making important 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."

Keith Tully

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Keith Tully
Partner

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Keith has been involved in Business Rescue since 1992, during which time he’s worked for both independent and national firms. His specialties include company restructuring matters and negotiating with HMRC on his clients behalf.

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