The latest RealBusinessesRescue.co.uk Business Distress Index data analysis for small and young businesses has revealed the number of start-up UK construction firms in significant financial distress* has leaped 20% (to more than 10,000) in Q2 as the UK feels the impact of coronavirus, putting 120,000 SME jobs in jeopardy.
As well as analysing the increasing number of start-ups in distress (businesses aged three years and under), the research used Red Flag Alert data to find that there is currently more than 67,000 construction SMEs in significant distress– an increase of 4% since Q1 2020. The uncertain future at these SMEs in significant distress is effectively putting 120,000 jobs at risk in an important sector for the economy.
The number of SMEs in distress in the construction sector makes up a considerable 13% of all the 520,000 SMEs in distress across UK sectors. However, this is not the largest number of distressed SMEs. Small to medium businesses in the support service sector account for 16% of all significantly distressed SMEs, with construction (13%) and real estate and property (11%) companies close behind.
Shaun Barton, National Online Business Operations Director at RealBusinessRescue.co.uk, said: “It is clear that the impact of COVID-19 on the construction industry has been marked. Many sites halted activity after lockdown and were effectively mothballed for several weeks which has adversely affected an increasing number of start ups in the sector and the job security of 120,000 employees.
“The reduction in activity and the impact on cash flow means that for many the future is a real financial challenge as they rely on a bounce back as activity resumes.
“The Government commitment to ambitious house building targets and general infrastructure spending remains in place and this, together with pent-up consumer demand, may help the sector to rebound in the future. However, young construction firms will be doing all they can in the short term to ensure they can survive and be in position to benefit from increased activity levels when they return.”
Start-ups and SMEs across sectors suffer
RealBusinessRescue.co.uk, set up by Begbies Traynor to advise business leaders in financial distress, also found that significant distress in start-ups in all sectors had soared in the last quarter mainly due to the effect of coronavirus on economic activity. There are now 92,000 start-ups businesses in distress – an 18% (14,000) increase on the previous quarter when the total of businesses stood 78,000.
Whilst the construction sector is grappling with its own difficulties, other sectors such as IT and telecommunications (21%), travel & tourism (21%) and bars and restaurants (16%) have also seen significant increases in the number of start-ups reporting financial distress over the past three months when compared to their experience in Q1 2020.
SMEs are also suffering with all 22 sectors analysed reporting an increase in significantly distressed companies. This is placing 1.7m SME jobs across the nation in jeopardy, with the highest numbers in support services (325,000), health and education (271,000) and manufacturing (125,000).
However, RealBusinessRescue.co.uk found that saving one company in the hotel and accommodation sector could save the most jobs, with an average of ten people employed by every distressed SME in the sector. The average construction firm was far behind this with two jobs per distressed SME.
Shaun Barton continues: “The hopes of a V-shaped recovery might be fading after the latest economic growth figures and the findings from our analysis demonstrate that SMEs have been hardest hit by the pandemic with 16,000 pushed into distress. Increasingly, SMEs across sectors are calling us up to ask for advice on which avenues they can take to save their businesses. We look at these figures and see that the government has good cause to save them.
“There are 1.7m jobs at stake within these troubled companies and the pay-off from saving businesses one at a time is huge. For the directors of these businesses, they know that it’s not just their company at risk. It is the livelihoods of their workers. Over the past few months many will have had sleepless nights worrying about their employees. It is at this point that they pick up the phone and talk to us, but they should feel free to talk before then and resolve issues before they grow.
“In these coming months, we expect that there will be more fallout, but we have to do all we can to help those businesses already in distress. CVAs, searching for investment or financial aid will become more normal as the months go on. Small businesses can get through this if they are presented with the correct avenues to take and we look forward to helping them through our specially set up helpline on RealBusinessRescue.co.uk.”
* ‘Significant’ distress is those businesses with minor CCJs (of less than £5k) filed against them or which have been identified by Red Flag Alert’s proprietary credit risk scoring system which screens companies for a sustained or marked deterioration in key financial ratios and indicators including those measuring working capital, contingent liabilities, retained profits and net worth.