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iStock 1319189527
iStock 1319189527

New report reveals the largest number of SMEs have moved out of financial distress since before the pandemic began

SMEs in significant distress are down 21% from the first quarter of 2021

Q3 saw the largest quarterly decrease in SMEs in distress seen since before the pandemic hit the UK 

The third quarter saw 390,000 fewer SME jobs in danger, a 13% improvement from Q2

Northern Ireland continues to see the biggest drop in SMEs in significant distress

One in five financially distressed businesses are under three years old, while 4,252 ‘pandemic’ start-up SMEs (currently aged one or under) are in significant distress 

December 2021: As businesses continue to fight the impact of COVID-19 and multiple national lockdowns, Real Business Rescue has released their quarterly Business Distress Index for Q3 (July – September 2021), uncovering a post-pandemic health check on SMEs in the UK. You can view the full report here

Small to medium-sized enterprises (SMEs) across the UK are continuing to fight back following the effects of the pandemic, according to our latest Business Distress Index. New data from the Q3 insolvency and business distress report – which focuses on the three-month period July to September 2021 – demonstrates a real change for SMEs escaping significant distress.

21% improvement on SMEs in significant distress since the first quarter of 2021

Many businesses continued to fight the lasting impacts of the pandemic, helped by a summer surge of consumption in the support of small to medium-sized businesses. This seems to have had a positive impact on the number of SMEs in significant distress with an almost 13% (12.6%) improvement since Q2, and a 21% improvement from the start of 2021.

Standing at 562,500 SMEs in distress in Q3 – 81,000 fewer than Q2 – this is the largest quarterly decrease seen since before the pandemic hit the UK in early 2020.

However, the figures also represent a bittersweet picture as Q3 saw the highest quarterly insolvency figures since before the pandemic, at 3,765 – a 21% increase on Q2 figures. Alongside this, Q3 also saw the highest quarterly liquidation in the last twelve years, since June 2009.

One in five financially distressed businesses are under three-years-old

In Q3, 111,009 SMEs in significant distress are under three-years-old, almost doubling this figure for companies under five (220,013). Taking a closer analysis of UK SMEs this quarter, it’s clear that years three to five represent a red zone, with the highest number of SMEs in significant distress falling within this age range.

While three to five years remains the red zone, unfortunately, some companies do not hit this milestone before falling into significant distress. 4,252 ‘pandemic’ start-up SMEs (currently aged one or under) were in financial distress in Q3. While the pandemic was hard-hitting on most businesses, it would have been even more challenging for new SMEs. The industry most likely to be under financial distress at ages one or under is Real Estate and Property Services, with 21% of businesses in this age range in financial distress falling within this sector. Followed in third by Support Services (502), and Construction (497).

On the opposite side of the scale, over 600 financially distressed SMEs in Q3 were between 100-165 years old, with the industry most likely to fall within this category being Support Services, with 22% of SMEs aged 100-165 in financial distress falling in this sector.

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Top five regions that have seen the biggest reduction in SME distress 

Despite the rise in insolvencies, the overall picture is positive with 81,000 SMEs out of significant distress and decreasing levels of regional distress.

Region SME jobs in distress SMEs in distress Quarterly change of SMEs in distress
Northern Ireland 41,719 8,095 18%
North East 62,902 10,974 15%
Scotland 149,022 28,615 15%
Yorkshire 173,222 32,995 15%
East of England 171,965 38,829 15%

Top five SME jobs in danger

Despite there still being 2.61 million SME jobs in danger in the UK, the data shows a 13% improvement on Q2, with 390,000 fewer jobs in danger.

Construction has seen the biggest improvement, with a 16.8% decrease in jobs in danger compared to the previous quarter. Whilst support services – covering jobs relating to the renting and leasing of goods, vehicles and equipment – saw a 13.1% decrease, they have the highest number of SME jobs in danger at 457,152.

Rank Sectors in most danger % change from Q1 to Q2 SME jobs in danger
1 Support Services -13.1% 457,152
2 Health and Education -9.6% 334,887
3 Construction -17.4% 206,136
4 Manufacturing -16.8% 167,113
5 Bars and Restaurants -8.3% 183,947

How do 2021’s Q3 distress figures compare to 2020 Q3?

Comparing this quarter’s figures with last year’s quarter three figures, we can see that London has seen the biggest increase in jobs in danger – a 4% uplift of jobs no longer at risk.

Northern Ireland saw the biggest improvement on businesses in distress versus this year’s previous quarter. When comparing the jobs in danger to quarter three in 2020, Northern Ireland has also seen the biggest improvement in jobs in distress, with a 5% reduction of jobs at risk.

In terms of sectors that have seen the biggest increase of jobs in danger compared to Q3 2020,  the Real Estate & Property Services recorded the highest number of job threats – a 13% increase.

Commenting on the research, Shaun Barton, National Online Business Operations Director at Real Business Rescue: 

“Our report on Q3 SMEs in distress paints a brighter picture for business across the UK. As companies continue to recover from the impact of COVID-19, this latest quarter saw the highest number of SMEs moving out of distress since before the pandemic. This could be seen as a direct result of the summer surge in consumption, as well as businesses getting back to their regular routine following numerous lockdowns – evident in the almost 18% improvement for the Construction sector. 

“While the report shows many positive results, there are still concerns among SMEs as other elements are at play; from rising inflation and material and labour availability to the payback of COVID-19 loans alongside the drawback in government support. This quarter saw the highest insolvency figures since before the pandemic, as well as the highest liquidation figures in the last twelve years – both rising numbers that are a serious cause for concern. 

“While many businesses struggled throughout the pandemic, some were brave enough to start up over the last year. In such a difficult environment, it’s not surprising to see a rise of businesses under a year old finding themselves in financial distress, with young companies in the hardest-hit industries such as Real Estate falling in this category. 

“While the overall picture is healthier – with SMEs across the country from previously struggling industries showing strides towards recovery – some businesses are continuing to fight against the current challenges with some, sadly, succumbing to the mounting pressure following the winding back of government support. And if we see new restrictions due to the new COVID-19 Omicron variant, that is likely to cause further upheaval for UK businesses.” 

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