The latest research from the Federation of Small Businesses (FSB) shows that 23 per cent of firms had already cut jobs in the last quarter, which is an all-time record for the survey.
This is predicted to become even more of an issue as the furlough scheme starts to taper off next month. The scheme has covered the wages of over 9m workers since it was introduced in April. But starting August 1st employers will need to start paying national insurance and pension contributions for furloughed staff, putting a further financial strain on bosses.
Begbies Traynor have carried out research of their own showing that an increasing number of businesses are in significant distress. In fact, the number has risen by 16,000 since the end of March this year, now totalling 527,000 businesses. By ‘in distress’, Red Flag means that a businesses has had a minor County Court Judgement (of less than £5k) filed against them or that they’ve been identified in Red Flag’s credit scoring system as having a key or marked deterioration in key financial indicators.
The firm’s latest Red Flag report shows that this Q2 was the seventh consecutive quarter showing an increase in small businesses who are in distress. Now 1.7m jobs are under threat, according to realbusinessrescue.co.uk, who gathered the figures.
Ric Traynor, executive chairman of Begbies Traynor Group plc, commented:
“Many of these support measures will have simply delayed the inevitable, with the can being firmly kicked down the road. Many businesses will have to deal with a toxic mix of reduced sales and increased levels of debt, plus the complications of dealing with staffing levels that cannot be supported by the level of business going forward.
“Change has been coming for some time before coronavirus, and after one and a half years of consistently increasing levels of distress, this pandemic has accelerated the rate of change. We have already seen some businesses in the affected sectors make significant alterations to their structures but unfortunately we expect to see many more cease to trade in the coming months. However, a crisis can be an opportunity to strengthen and create more sustainable jobs in the future but undoubtedly this restructuring will be painful over the next few years.”
Faring in varying degrees
Rather than being a picture of despair, the views that small companies have of their future is becoming increasingly polarised.
According to the FSB’s Small Business Index, over a fifth (23 per cent) of small businesses expect their businesses to fare ‘much worse’ over the next three months – that’s gone up 13 percentage points since this time last year but also significantly down on Q1 2020. However, the proportion of business owners who think that their business prospects are ‘much improved’ has also vastly improved, sitting at a little over one in ten (13 per cent). Almost 60 per cent of small business owners expect to remain stable, with 42 per cent expecting a relative improvement as lockdown eases. Three quarters say coronavirus is negatively impacting their confidence, down from nine in ten in Q1 2020.
The wholesale as well as arts and entertainment are the sectors who are least confident in seeing an uplift at 13 per cent, and a meagre two per cent, respectively. However, those in the construction and food and drink and accommodation are the most confident about an uplift in the next quarter, at 29 per cent and 26 per cent respectively.