New official figures show insolvencies have increased by more than three quarters compared to the same month the previous year, up 79% (May 2021), and have increased by more than a third (34%) when compared to April 2019, and pre-pandemic levels.
As a result, business finance experts are encouraging small business owners to plan ahead and be prepared for the reality of months of difficult trading.
Lee Murphy, managing director at The Accountancy Partnership, said:
“The difficulty of recent years and continuing turbulent trading conditions mean that a greater proportion of businesses are finding it difficult to remain solvent. The pandemic, rising inflation, supply chain issues and recruitment difficulties are all significant enough to bring many companies to a halt, but together they can prove fatal for small businesses.
“Research found that on average new entrepreneurs rated their business knowledge a mere 5/10, highlighting that many were unprepared for the challenges of running a business. By educating and guiding these owners through the available resources to assist with future challenges, we can help limit the number of businesses that cease trading and ensure fledgling companies are well equipped for the future.
“Thorough business planning helps entrepreneurs, new and experienced, understand what they’re facing and prepare for what might be around the corner. It will put them in the best position to face the future. Ensuring they have a good handle on their business’s financial performance will allow them to manage cash flow, minimise costs and track and claim all allowable expenses, such as vehicle expenses, food and drink, and even uniform. It’s estimated that £5.6 billion of expenses go unclaimed as a result of SME owners’ hesitancy to include expenses in tax returns.
“SME owners should also consider the best business structure for them from a tax efficiency perspective. For example, depending on the size, turnover and profit, businesses might find it better to operate as a or Limited Company rather than as a sole trader. Support is available for business owners, and they shouldn’t overlook accounting professionals as a useful resource. Working with multiple businesses across many different industries gives us terrific insight that we can often apply elsewhere.
“Being an entrepreneur can be lonely, but speaking to colleagues, friends and family about the challenges you face and what is happening can go some way to lifting the mounting pressures.”