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Record number of small businesses to close in 2021

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11/01/2021
More than a quarter of a million small UK businesses are planning to close over the coming 12 months – a record number according to an index.

The UK is on course to see at least 250,000 small businesses fold over 2021, more than double recorded in the same period a year ago.

According to the quarterly Federation of Small Businesses (FSB) Small Business Index, this figure is at an all-time high for the near six million small firms across the UK.

It found that just under 5% of the 1,400 firms polled said they expect to close this year.

Nearly a quarter (23%) of small firms have decreased staff numbers in the last quarter, up from 13% at the beginning of last year.

One in seven (14%) said they’ll be forced to cut numbers over the next three months, a daunting prospect for the 16.8 million estimated to work in smaller UK firms.

The FSB also revealed that the proportion of small businesses forecasting a reduction in profitability for the coming quarter has spiralled over the past year, rising from 38% to 58%. The figure is at an all-time high.

Meanwhile, its confidence measure stands at -49.3%, down 27 points year-on-year – the second lowest reading in the index’s 10-year history after March 2020’s result.

And given Brexit, almost half (49%) of exporters expect international sales to drop this quarter, up from 33% at this time last year.

‘Shame to lose top businesses of tomorrow’

FSB national chairman, Mike Cherry, said the development of business support measures “hasn’t kept pace with intensifying restrictions”.

“As a result, we risk losing hundreds of thousands of great, ultimately viable small businesses this year, at huge cost to local communities and individual livelihoods. A record number say they plan to close over the next 12 months, and they were saying that even before news of the latest lockdown came through.

“Company directors, the newly self-employed, those in supply chains, and those without commercial premises are still being left out in the cold.

“We also have to look again at how we treat emergency debt facilities over the coming months. Many of those who have borrowed significantly have done so in order to innovate. It would be a shame to lose the top businesses of tomorrow because of a failure to extend grace periods today.

“This government can stem losses and protect the businesses of the future, but only if it acts now.”

‘There needs to be even greater support’

Ian Warwick, managing partner at Deepbridge Capital, said: “Unfortunately, this is no surprise as the latest lockdown represented yet another setback for many business sectors, SMEs and workers.

“The government has worked hard in an incredibly difficult environment to create a capital lifeline to many SMEs via the BBLS and CBILS, as well as long-term support for growth-focused companies via the likes of the Enterprise Investment Scheme, but now we would urge that there needs to be even greater support – both via financial and via sustainable growth initiatives.

“Agile companies, which have survived 2020 and provide a product or service which has a genuine medium to long term solution to a recognised problem, will continue to develop and grow but require capital to do so.”

Douglas Grant, director of Conister, part of AIM listed Manx Financial Group, said: “The long-term future of the UK’s business sector is fundamentally reliant on people and resilience. Business has always been about people buying from other people. We must ensure that principally the financial security of individuals is protected so that they can continue to conduct business with each other and while businesses across the country have shown extraordinary levels of adaptability and strength in the face of changing consumer behaviour, we must also appreciate that we are now beyond the survival stage.”

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