Ric Traynor, executive chairman of Begbies Traynor Group

The research has revealed the largest quarterly increase in the number of businesses in significant financial distress since the end of 2017 to 509,000 – the highest number recorded by this research.

In just three months, factors including the coronavirus pandemic have pushed more than 15,000 businesses into significant distress with the data showing that SMEs have been chiefly effected.

Of the 509,000 in distress, 504,000 are businesses with under 250 employees highlighting the vulnerability of smaller businesses. Although the Government has introduced support measures, including the Coronavirus Business Interruption Loan Scheme (CBILS), some firms have struggled to gain access to the government-backed loans.

Of even greater concern is the increase of businesses in critical distress – usually a precursor to insolvency – with a 10% increase in the past quarter alone. This figure would have been even higher, but creditors have been held back from taking court action due to the lockdown.

There are now 2,289 businesses in critical distress with the most notable increases in the past quarter a 37% increase in bars and restaurants (Q4 2019, 87 to Q1 2020, 119), 21% increase in real estate and property (Q4 2019, 128 to Q1 2020, 155), 11% increase in construction (Q4 2019, 509 to Q1 2020, 563) and 8% increase in both general retail (Q4 2019, 116 to Q1 2020, 125) and manufacturing (Q4 2019, 124 to Q1 2020, 134).

Julie Palmer, partner at Begbies Traynor, said: “The coronavirus pandemic is a true ‘black swan’ event that has decimated short term business financial performance. Although it is still early days and with no end to the lockdown in sight things could get much worse, with the Red Flag research highlighting landmark levels of financial distress already. 

“With many SME’s yet to access government funding such as CBILS, many will simply run out of cash, particularly with the April pay run approaching and payment for furloughed staff still outstanding.  The Red Flag research demonstrates that many businesses were being cut close to the root before this crisis started to affect the economy and may be left with little option but to cut their losses with the knowledge that they would never be able to pay back a loan, no matter what the terms.

“While the loss of a business is devastating, UK business owners are talented entrepreneurs and after coronavirus will find opportunities. At this moment, we just have to anticipate what those opportunities are.”

Ric Traynor, executive chairman of Begbies Traynor Group plc, added: “We hope that the concerted effort made by the Treasury to stand behind UK businesses through its package of measures proves to be successful so that the business community and, ultimately the UK economy can withstand the huge pressures placed upon it during this time.

“The truth is that this crisis has hit all business owners by complete surprise. They weren’t ever expecting to face such a drop off in activity or footfall, and few can be prepared for such a cliff edge in revenue.”

Read all of our articles relating to COVID-19 here.