Number of small businesses in distress triple pre-Covid level

Nearly 135,000 businesses in trouble with accountancy firm Mazars warning of ‘calm before the storm’.

The number of small businesses in distress has tripled compared with the pre-pandemic average, according to figures from accountancy firm Mazars.

This month almost 135,000 businesses are showing strain, as the impact of a year of Covid-19 restrictions reverberates.

Businesses in the services and retail sectors accounted for almost three-fifths of those showing distress, said Mazars. Sectors allowed to reopen were faring better, with construction and manufacturing businesses making up 7.9 per cent and 6.7 per cent of those in distress respectively.

>See also: UK-EU exports fell by over 40% in January 2021

Paul Rouse, partner at accountancy firm Mazars, said: “During more normal circumstances, we expect between 40,000 and 50,000 companies to trigger one of our negative health markers. Today- even with many Government support measures still in place – we are seeing roughly three times that amount: 135,000.

Rouse said that even these higher figures represented “the calm before the storm” as “significant amounts of business distress” would be felt once the Government withdrew its coronavirus financial support.

London accounts for just over a quarter of businesses in distress (25.58 per cent) followed by businesses more generally in the South East outside the M25 (18.44 per cent).

>See also: Covid debt drowning small businesses to the tune of £104bn

Todd Davison, managing director of Purbeck Personal Guarantee Insurance, said: “A company is deemed insolvent when it can’t pay bills when they become due, or it has more liabilities than assets on its balance sheet. With some businesses seeing sales driven down by as much as 50 per cent during the pandemic, reports suggest the number of insolvencies could potentially be even higher than at the height of the global financial crisis back in 2009.

5 warning signs of insolvency

Purbeck Personal Guarantee Insurance has compiled five warning signs that could start flashing if your business is in distress:

#1 – Cash flow problems

All businesses will experience a squeeze in cash from time to time. But, if the problem is frequent or constant, then you’ve got an underlying issue that needs to be resolved

#2 – High-interest payments

If, when trying to access a business loan, the interest rates are sky-high – or lenders are insisting on higher levels of personal guarantee – this indicates that they are treating your company with caution

#3 – Defaulting on bills

This is not only bad for your relationships with suppliers and your reputation, it’s also likely to lead to your creditors taking action against you

#4 – Late payments

One of the most obvious early signs of insolvency is when you’re continually late in settling up with your creditors, or in collecting payments from your debtors

#5 – Falling margins

High sales don’t necessarily mean business is booming. If costs are high, too, you could soon end up in the red. Always look at your bottom line, not just your turnover

Further reading

SMEs forecast 8.1% growth over 2021 as they plan for lockdown easing

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Tim Adler

Tim Adler is group editor of Small Business, Growth Business and Information Age. He is a former commissioning editor at the Daily Telegraph, who has written for the Financial Times, The Times and the...

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