Guest Blog: 10-minute read

Which business industry is on top of the food chain during Covid-19?

As far as business contingency planning goes, preparing your company to withstand the economic pressures likely to derive from a pandemic, or even an epidemic may not have made the list due to the rarity of the crisis. A year since the World Health Organisation (WHO) declared Covid-19 a public health emergency of international concern, businesses are readying to restart trade after the third coronavirus lockdown.

As non-essential shops face closure to reduce transmission of the disease and hospitality businesses encounter trading restrictions, income and consumer demand reacts in a manner just as volatile. On the other hand, the coronavirus pandemic is birthing a series of new businesses, from virtual educational tuition providers to grocery drop-off services.

We assess the business landscape by ranking which sectors are thriving and which require additional support to remain buoyant using business distress data gathered by Real Business Rescue, business turnaround and liquidation experts, part of Begbies Traynor Group.

600,000 SME businesses in distress endangering 2.8 million jobs

The Business Distress Index for Q4 2020 found that 620,000 small-to-medium enterprises (SMEs) are now in significant distress, an increase of 23% since the first lockdown. This represents 2.8 million jobs that are now under threat, propped by government support such as the Coronavirus Job Retention Scheme (CJRS).

Although the Covid-19 crisis has pushed a significant number of businesses towards financial difficulty, the number of insolvencies has reduced. As the government subsidises a percentage of employee wages through the furlough scheme and introduces government-backed loans, businesses are biding their time and hoping to preserve financial health before support is withdrawn. Once already tapered government support comes to an end, company insolvencies may dramatically rise.

The threat the coronavirus pandemic poses to young businesses is grave as significant distress refers to companies with minor CCJs of less than £5k filed against them. Businesses with deteriorating financial health, such as working capital, retained profits and net worth are classified under this bracket.

How are North West businesses faring during the coronavirus pandemic?

To answer how Covid-19 is impacting SME distress levels on a regional scale, North West stands sixth in line during Q4, following North East, Northern Ireland and Midlands, respectively. The business distress statistics show that 13,046 start-ups in the North West are in financial distress, representing an 18% quarterly increase.

Zooming into sector-specific data, real estate and property businesses experienced a 20% increase, putting 108,000 jobs in danger. There was also a worrying 19% increase in significantly distressed SMEs in the hotel sector where restrictions continue to disrupt trade. Significant distress increased by 16% in SMEs in the support services sector, manufacturing by 15% and travel and tourism by 14%.

How will a business survive once government support is withdrawn?

SMEs currently plugged with emergency Covid-19 support will need to find ways to fast track survival before government support runs out. As announced during the 2021 Budget announcement, the government extended selected existing measures as we continue through the emergency stage of the coronavirus pandemic.

Turning our sights to post September once the furlough scheme comes to an end, businesses will need to kickstart operations independently, with limited support from the government. Many ailing businesses are currently under the protection of existing Covid-19 support measures, however, once the safety braces are removed, unviable businesses with no prospects of a profitable future could fuel a rise in insolvencies.

Keith Tully, partner at Real Business Rescue, said:

 As the government subsidises a percentage of employee wages through the furlough scheme and introduces government-backed loans, businesses are biding their time and hoping to preserve financial health before support is withdrawn.

 Once already tapered government support comes to an end, company insolvencies may dramatically rise.

As the Recovery Loans Scheme replaces the Bounce Back Loan Scheme from April 2021, all sized businesses will be able to claim between £25,000 and £10 million until applications close at the end of the year. If SMEs require additional support to fill the income gap, here are three options:

1. Time to Pay Arrangement

If businesses require extra breathing space to pay tax liabilities, a Time to Pay arrangement can help create a pathway that allows you to negotiate tax repayments with HMRC. By formalising an affordable payment agreement that allows you to spread tax payments, you can free up cash flow and increase existing working capital. In light of Covid-19, Time to Pay arrangements have been made easily accessible.

2. Company Voluntary Arrangement

If you are struggling to keep up with payments to creditors, a Company Voluntary Arrangement is a formal insolvency procedure that allows you to negotiate payments with creditors. Once agreed, you will be required to make a single monthly instalment which is then distributed to creditors. If your business is in a fragile state, a Fast Track CVA is a speedier version of a Company Voluntary Arrangement which may be better suited.

3. Alternative finance

If you require a cash injection to boost cash flow, you may consider seeking out a finance solution, such as a loan. To access finance to facilitate the purchase of specialist equipment/machinery, asset finance can enable this. If you wish to fill the income gap between invoice payments, invoice finance can provide a solution. Alternative finance providers can often provide competitive finance products at a fast pace, in comparison to banks.

The routes available to your business will vary depending on your financial health and the likelihood of business recovery. As the economy adjusts to uncertainty due to the coronavirus pandemic, the vaccine rollout takes us one step closer to normality, reaffirming the position of core industries.

This is a guest post authored by Keith Tully, insolvency practitioner and partner at Real Business Rescue, part of Begbies Traynor Group.

Thank you to Keith and the team for providing this guest blog.

If you need legal advice or to sense check the legal health of your business, please feel free to get in touch with our dedicated commercial teams.

If you are concerned about cash flow into your business due to overdue invoices, please get in touch with our Commercial Recoveries team.