Financial distress of UK firms exposes fragility? of micro businesses
Over a quarter of a million small UK firms ended 2016 in a state of ‘significant? financial distress, according to new research that highlights the growing difficulty of keeping a new business alive.
The Red Flag Alert report, published by recovery firm Begbies Traynor, takes a business health check every three months and found that, for the final quarter of 2016, 91 per cent of companies struggling to survive were the UK’s ‘smallest businesses.
In a statement, Julie Palmer, a partner at Begbies Traynor, said that small firms were the lifeblood? of the economy, adding that a trade deficit of 12.2bn in November was worse than many had predicted.
the scale of financial 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.
Palmer warned that the short life-expectancy of young companies and harsh economic conditions meant that many owners were quickly tempted back to more secure employment.
although record numbers of new startups continue to join the economy each year, a large proportion don’t stay in business for long, with growing numbers of aspiring entrepreneurs returning to more established businesses as soon as the opportunity arises, she added.
Small businesses operating in London made up a quarter of those in ‘significant financial distress, with£64, 764companies struggling.
The report highlighted lifestyle? businesses ventures founded as a result of unemployment as typically short-lived. Of the 470, 000 companies founded in 2011, almost 57 per cent have since folded.
Citing uncertainty around Brexit negotiations and the direction of US trade policy as causing financial distress, Begbies Traynor executive chairman, Ric Traynor, concluded that 2017 could well be a defining year for UK business.
Avoiding financial distress as a new business
Business Advice spoke to the founder of knitted beanie brand ZainI Hats, Miranda Harper, in 2016. She told us of the importance budgeting plays in the early days of trading.
the key for ZainI Hatsin the beginning was having a 20, 000 pot to work from, which helped hugely and allowed me to get everything I wanted to do for year one done. It was then a case of working from the profits, which we have been doing ever since.
Praseeda Nair is the editorial director of Business Advice, and its sister publication for growing businesses, Real Business. She's an impassioned advocate for women in leadership, and likes to profile business owners, advisors and experts in the field of entrepreneurship and management.
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