While new government figures reveal a 2.2% increase in the number of insolvent businesses, experts say it’s too early to blame the EU referendum
Every entrepreneur starts a business well aware that the majority of startups fail. Nevertheless, it’s disheartening to hear that the number of companies going bankrupt increased in the third quarter this year compared to the same period of 2015, according to a new government report.
An estimated 3,633 companies in England and Wales became insolvent between July and September, which meant there was a 2.2% increase from the second quarter and a 1.1% jump compared to the third quarter of 2015. Additionally, 632 companies went into liquidation in the third quarter of 2016 – 4.5% fewer than in the second quarter of 2016. However, when you look at last year’s figures this was still a 2.4% increase from the third quarter of 2015.
Given that the referendum in June caused market instability that’s prompted companies like Pure Gym to cancel their planned IPOs, you could be forgiven for blaming the increasing number of companies going bankrupt on the decision to leave the EU. However, Andrew Tate, president of R3, an insolvency and restructuring trade body, said it’s too early to jump to that conclusion. “A quarterly rise in corporate insolvency numbers is not necessarily an indicator of Brexit-related financial problems for UK companies,” he said. “At least, not yet."
The government’s figures come just days after new research from NGA Human Resources, the HR service provider, revealed that while 59% of large businesses in the UK expect to be positively affected by Brexit, only 35% of SMEs shared that optimism. Additionally, 25% of SME employees believe their situation will worsen after the UK has left the EU.
"Most of them don’t like the uncertainty that comes with such substantial changes to the economy and the labour market,” said Alison Dodd, managing director at Moorepay, the SME division of NGA Human Resources. However, she added that it’s not all doom and gloom. ”By making preparations now and looking at how the Brexit will potentially impact their organisation, SMEs can make sure they make it through the stormy months and years ahead without putting their business at risk.”
While preparing for the worst case scenario might save some startups from running into trouble, the future of British SMEs still seems to be very much up in the air.