Coronavirus plunges additional 21% of U.K. IT & telecoms start-ups into significant distress and puts 100,000 SME jobs under threat

• 21% quarter on quarter increase in IT & telecoms start-ups in significant distress
• Number of IT & Telecoms SMEs in significant distress now stands at 34,000 – an increase of 4% on Q1 2020
• 103,000 jobs being held by significantly distressed IT & telecoms SMEs in distress – an average of three jobs at risk per company

The latest RealBusinessRescue.co.uk Business Distress Index data analysis for small and young businesses has revealed the number of IT & telecoms start-ups in the UK in significant financial distress* has leaped 21% (to almost 5,000) in Q2 as the UK feels the impact of coronavirus, putting 103,000 SME jobs in jeopardy.

As well as analysing the increasing number of start-ups in distress (business aged three years or under), the research used Red Flag Alert data to find that there is currently 34,000 SMEs in significant distress in the bar and restaurant sector– an increase of 4% since Q1 2020. The uncertain future at these SMEs in significant distress is effectively putting 103,000 jobs at risk in an important sector for the economy.

However, the number of SMEs in distress in the IT & telecoms sector only makes up 9% of all the 520,000 SMEs in distress across UK sectors. Support service SMEs account for 16% of all these significantly distressed businesses, with construction SMEs (13%) and real estate and property SMEs (11%) close behind.

Shaun Barton, National Online Business Operations Director at RealBusinessRescue.co.uk, said:

“The global pandemic has hit the trading performance of all sectors hard.  For the IT and telecoms industry and its young start-ups, the challenge to survive has been severe since lockdown was imposed in March. During this time, we have seen a 21% increase in fledgling IT businesses fall in financial distress and put 103,000 jobs at risk.  It is hoped that the gradual easing of restrictions will pave the way for an increase in activity and with it a rebound for a sector that underpins many others.  However, the immediate future is going to be problematic as companies seek out ways to remain financially viable and protect the jobs of many young people who populate the sector.”

 

Start-ups and SMEs across sectors suffer

RealBusinessRescue.co.uk, set up by Begbies Traynor to advise business leaders in financial distress, also found that significant distress in start-ups in all sectors had soared in the last quarter mainly due to the effect of coronavirus on economic activity.  There are now 92,000 start-ups businesses in distress – an 18% (14,000) increase on the previous quarter when the total of businesses stood 78,000.

Whilst the IT & Telecommunications industry is grappling with its own difficulties, other sectors such as construction (20%), Travel & Tourism (21%) and Bars and Restaurants (16%) have also seen significant increases in the number of start-ups reporting financial distress over the past three months when compared to their experience in Q1 2020.

SMEs are also suffering with all 22 sectors analysed reporting an increase in significantly distressed companies. This is placing 1.7 million SME jobs across the nation in jeopardy, with the highest numbers in support services (325,000), health and education (271,000) and manufacturing (125,000).

However, RealBusinessRescue.co.uk found that saving one company in the hotel and accommodation sector could save the most jobs, with an average of 10 people employed by every distressed SME in the sector. The average IT & telecoms business was far behind this with three jobs per distressed SME.

Shaun Barton continues: “The hopes of a V-shaped recovery might be fading after the latest economic growth figures and the findings from our analysis demonstrate that SMEs have been hardest hit by the pandemic with 16,000 pushed into distress. Increasingly, SMEs across sectors are calling us up to ask for advice on which avenues they can take to save their businesses. We look at these figures and see that the government has good cause to save them.

“There are 1.7 million jobs at stake within these troubled companies and the pay-off from saving businesses one at a time is huge. For the directors of these businesses, they know that it’s not just their company at risk. It is the livelihoods of their workers. Over the past few months many will have had sleepless nights worrying about their employees. It is at this point that they pick up the phone and talk to us, but they should feel free to talk before then and resolve issues before they grow.

“In these coming months, we expect that there will be more fallout, but we have to do all we can to help those businesses already in distress. CVAs, searching for investment or financial aid will become more normal as the months go on. Small businesses can get through this if they are presented with the correct avenues to take and we look forward to helping them through our specially set up helpline on RealBusinessRescue.co.uk.