The latest Business Distress Index from Real Business Rescue has revealed the number of SME construction companies in significant financial distress now stands at 79,570 – an 11% increase in the last quarter of 2020 and placing 218,068 jobs under threat.
The website RealBusinessRescue.co.uk, set up by Begbies Traynor to advise business leaders in financial distress, analysed data from Red Flag Alert and discovered that these construction firms in significant distress* are part of 620,000 SMEs in distress across sectors, with a total of 2.8m jobs under threat.
In addition to this, Real Business Rescue discovered that the number of start-up construction firms (born after 2017) in significant distress had increased by 21% in the last quarter due to the pandemic. There are now 15,247 of these fledgling businesses – a 77% increase since the start of lockdown when there were 8,592 in distress.
Property sector hit hard
Of the 620,000 SMEs in distress, the Real Business Rescue analysis reveals the property sector saw the biggest increase in troubled companies with a 31% leap since the beginning of the first lockdown followed by the transport and logistics sector with a 27% increase during the same time.
However, when it comes to job protection these sectors are not the most concerning. There are 515,000 jobs held by the 99,000 support services businesses in distress and 349,000 people employed by 35,000 troubled health and education businesses.
Shaun Barton, National Online Business Operations Director at Real Business Rescue, said: “These latest results demonstrate that for many SME and start-up businesses the financial challenge of the pandemic remains in place. With a 14% increase in the number of smaller sized companies reported to be in significant financial distress during Q4 of 2020, this continues the trend we have seen since the health crisis first struck back.
“Whilst the construction sector has been largely able to operate once initial restrictions from the first lockdown were lifted, nonetheless it is clear that many smaller sized firms have struggled as 2020 progressed. Start-ups have been particularly hard hit. We have a seen a 77% increase in start-ups falling into financial distress since last March and this trend has continued with another significant leap in the last quarter of 2020. The sector needs to stand firm in the hope that an upturn in economic activity and a return to more normalised demand conditions will help its recovery. With restrictions currently in place, it may well be later into 2021 that we see this materialise.
“For these small businesses, which have little or no cash reserves, there is a 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 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 must 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.”
Shaun Barton continues: “Start-up businesses are also at risk and are most likely to have not had the experience of which direction to turn when finances become difficult. We are advising these businesses daily and would recommend that they find out all their options before making rash decisions. The UK is filled with talented entrepreneurs; the challenge now is to help them take the next step. If there are financial issues, insolvency is not always the only option. Even the biggest businesses restructure; it is just whether they do it correctly. The options are there; SMEs just have to take the leap.”