The number of small businesses in need triples before Covid

Red alert: Mazars normally expects around 40,000 companies to be in distress, compared to 134,437 today

The number of small businesses in distress has tripled compared to the pre-pandemic average, according to the accounting firm Mazars.

Almost 135,000 businesses have been weighed down this month as the effects of a year of Covid-19 restrictions linger.

Companies in the service and retail sectors accounted for nearly three-fifths of those hard pressed, Mazars said. The sectors that were allowed to reopen performed better. Construction and manufacturing companies accounted for 7.9 percent and 6.7 percent of those in distress, respectively.

> See also: Exports between the UK and the EU fell by over 40% in January 2021

Paul Rouse, partner at accounting firm Mazars, said: “Under normal circumstances, we expect between 40,000 and 50,000 companies to trigger one of our negative health indicators. Today – despite many government support measures still in place – we are seeing roughly three times that amount: 135,000.

Rouse said that even those higher numbers represented “the calm before the storm” as “significant business problems” would be felt if the government withdrew its financial support for the coronavirus.

London accounts for just over a quarter of businesses in need (25.58 percent), followed by businesses in the southeast outside the M25 (18.44 percent).

> See also: Covid debt is drowning £ 104 billion in small businesses

Todd Davison, General Manager of Purbeck Personal Guarantee Insurance, said, “A company is considered insolvent if it cannot pay bills when due or has more liabilities than assets on its balance sheet. Given that some companies saw sales declines as much as 50 percent during the pandemic, reports suggest that the number of bankruptcies could potentially be even higher than at the height of the global financial crisis in 2009.

5 warning signs of bankruptcy

Purbeck Personal Guarantee Insurance has put together five warning signs that can start flashing in an emergency at your company:

# 1 – cash flow problems

All companies will experience a liquidity squeeze from time to time. However, if the problem occurs frequently or constantly, then there is a problem that needs to be addressed

# 2 – High Yield Payments

If interest rates are sky high when trying to access a business loan or lenders insist on a higher level of personal guarantee, it means they are treating your business with caution

# 3 – Default on invoices

Not only is this bad for your supplier relationships and reputation, but it is also likely to lead to your creditors taking action against you

#4 – late payment

One of the most obvious early signs of bankruptcy is when you are consistently late to coming to terms with your creditors or collecting payments from your debtors

#5 – falling edges

High sales don’t necessarily mean business is booming. If the cost is high too, you could be in the red soon. Always look at your bottom line, not just your sales

further reading

SMEs forecast 8.1% growth in 2021 as they plan to ease the lockdown

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