New research from Begbies Traynor shows that more than 275,000 companies were showing signs of “significant” financial distress at the close of 2016, representing the thirteenth consecutive quarter that corporate stress has risen on a year-on-year basis.
According to the recovery specialist’s Red Flag Alert data, 276,518 businesses were experiencing “Significant” financial distress at the end of 2016; an increase of 3% compared to the same period last year (Q4 2015: 268,898 companies).
Of the companies experiencing financial distress during Q4 2016, 91% (254,857) were SMEs. At the same time, nearly a quarter (23%) of the country’s struggling businesses were in London, where 64,764 companies finished the year in a state of “Significant” financial distress; an increase of 5% on Q4 2015.
However, this rising distress comes at a time when the number of UK company incorporations is growing, with more than 685,000 start-ups joining the economy during 2016 alone – the highest level since the start of the financial crisis in 2007.
In its report, Begbies Traynor highlights that many of these start-ups are short-lived “lifestyle” businesses often forced upon people by changing circumstances, such as the loss of paid employment. For example, of the c.470,000 companies incorporated during 2011, almost 57% have since been dissolved, struck off or have entered formal insolvency procedures, and another 7.5% are not even trading.
Julie Palmer, partner at Begbies Traynor, comments: “The scale of SME distress at the end of 2016 just goes to highlight the fragility of UK micro businesses, many of which are underfunded, lack management experience or are flawed in concept. Although record numbers of new start-ups continue to join the economy each year, a large proportion don’t stay in business for long, with growing numbers of aspiring entrepreneurs returning to more established businesses as soon as the opportunity arises.”