Over the course of the pandemic, we’ve spoken to many of our clients and heard the stories around entrepreneurs setting up new businesses as they see niches created as part of the pandemic, or businesses such as the leisure and hospitality sector where they’re simply looking to survive the various government lockdowns until a return to some form of near normality.
We have been following the statistics of the number of companies that have been incorporated and dissolved since the 1st government lockdown back in March 2020 and the numbers start to tell a story.
We focused our review on the period between April 2019 – April 2020 and April 2020 – April 2021.
Nationally, the number of incorporated businesses were up 210,758 to 830,509 or 34%. This would appear more concentrated in London, where the increase was 55%, or 297,132 incorporations, compared to the home counties of Buckinghamshire of 30% or 9,556 incorporations and Hertfordshire of 21% or 17,066 incorporations.
The number of dissolved businesses in the same period makes for equally interesting reading. Nationally, the number decreased by 89,203 to 466,079 or 16%. Hertfordshire was in line with the national trend with 12,423 dissolutions, whilst the decrease in dissolutions in London was 20% or 145,716 and even higher decrease in Buckinghamshire of 30% or 6,064 dissolutions.
A rise in newly incorporated businesses?
Even a pandemic has not been able to dampen the entrepreneurial spirit, with a surge of incorporations as people who may have been made redundant by the pandemic, those seeing a niche in the market or simply employees wanting to go it alone and setting up their own businesses.
Drop in dissolved businesses?
The drop in dissolutions is significant compared to the prior year. The assumption is that the various forms of government support that has been available over the past year such as the job retention scheme, business rate reliefs, recovery loan schemes have helped to stave off business closures. As we write this article in mid-June 2021, with the final lockdown restrictions across some parts of the UK being delayed until mid-July, it will be interesting to see whether the number of dissolved businesses increase, as support is inevitably reduced as time goes on.
Temporary insolvency measures in the Corporate Insolvency and Governance Act also helped which saw the temporary suspension of statutory demands and winding-up petitions to protect companies from creditor enforcement action due to debts related to Covid-19 and the removal of the threat of personal liability for wrongful trading from directors extended to 30 June 2021.
What to look out for as a company director that your business could be in distress?
Key areas to look out for include:
- Cashflow – as they say, “cash is king”. A periodic dip in cashflow isn’t usually a cause for concern, especially if it was forecast. However, if your business is constantly suffering from a lack of cash to pay the bills, it could lead to issues.
- Loans & interest payments – High interest rate payments on your loans or having to offer personal guarantees could be an indication of poor credit history and hence needing to offer more to the lender to secure financing.
- Extended creditor days – delaying payments to creditors may also impact your relationship with suppliers and they may not supply you unless you pay up front (or not supply you at all).
- Low profit margins – A business which operates on low profit margins or falling margins could indicate costs are too high or reduced levels of income.
How can we help?
Whether you’re starting a business or needing some advice on growing your business or need help to access finance, getting the right advice early on is vital.
We can help with starting a business by advising you on ways to invest your money and structure your business in the most cost effective and tax efficient way.
When growing a business, we take a holistic rather than piecemeal approach to advice. For example, our tax experts work closely with you to understand the whole picture when advising you on the tax implications of your growth plans. It’s important to get advice early in the process if you are thinking of investing in your business or acquiring another.
By understanding your reasons for starting your business and your ultimate goals, we can advise you on a number of areas including raising finance, setup EIS funding, business structure, tax efficient remuneration and profit extraction, business property ownership, company cars, patents and R&D tax credits, pensions and investments.
Figures used throughout the article were sourced from Bureau van Dijk’s FAME