More SMEs ended 2016 in significant financial distress

New research from Begbies Traynor shows that year-on-year corporate stress has risen for the 13th consecutive quarter

More SMEs ended 2016 in significant financial distress

From coming up with an idea to making clients pay on time, the road towards the startup hall of fame is never straightforward. And according to new research from Begbies Traynor, the professional services consultancy, becoming a successful founder is only becoming harder.

Having analysed data from corporate Britain, Begbies Traynor has revealed that 276,518 UK businesses – 91% of which were SMEs – finished 2016 in significant financial distress. That was a 3% increase compared to the fourth quarter of 2015 and the last quarter of 2016 was the 13th consecutive quarter that corporate stress increased on a year-on-year basis since the third quarter of 2013.

London businesses were particularly well-represented in the rather gloomy statistics, with 64,764 of the struggling companies being based in the capital. This represented a 5% increase since the fourth quarter of 2015.

Begbies Traynor also highlighted that while the number of startups in the UK increased by 685,000 in 2016, many new businesses have been short-lived. For instance, 57% of the businesses incorporated in 2011 have since been dissolved, struck off or entered formal insolvency procedures. An additional 7.5% are no longer trading.

“The scale of SME distress at the end of 2016 just goes to highlight the fragility of UK micro businesses, many of which are underfunded, lack management experience or are flawed in concept,” said  Julie Palmer, partner at Begbies Traynor. “Although record numbers of new startups continue to join the economy each year, a large proportion doesn’t stay in business for long, with growing numbers of aspiring entrepreneurs returning to more established businesses as soon as the opportunity arises.”

With current market turbulency in mind, the consultancy also warned that the number of startups feeling the pressure may not drop any time soon. Commenting on the issue, Ric Traynor, executive chairman of Begbies Traynor, said: “EU exit negotiations and US trade policy could be major factors affecting business this year either for better or worse whilst rising inflation and fluctuating exchange rates are likely to have a negative impact. Either way 2017 could well be a defining year for UK business.”

The research may certainly cause some concern, but we’re certain that the talent of entrepreneurial Britain is up for the challenge.

Eric Johansson
Eric Johansson

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