One-third of UK businesses close to running out of cash

Nine months of interrupted trading have taken an enormous toll on UK businesses across many sectors, with nearly a third of firms having less than three months of cash reserves remaining, according to figures from the Office for National Statistics (ONS).

New data from the ONS shows that, across all industries, 30.4 per cent of UK businesses have between 0-3 months of cash reserves, as the scale of business distress created by the COVID-19 pandemic continues to grow.

The situation is particularly pronounced in the hospitality industry, which has been especially hard hit by the COVID-19 pandemic. 51 per cent of hospitality businesses currently have 0-3 months of cash reserves remaining.

In the crucial pre-Christmas fortnight, four-in-ten food and accommodation businesses were forced to cease trading, with over three-quarters saying that turnover was down compared to a typical festive period.

With a third lockdown now underway, close to three-in-ten hospitality businesses say they are unlikely to survive beyond Q1 2021. As a result, widespread administrations and closures seem certain over the first half of 2021.

This is in spite of the Treasury’s recent announcement of £4.6 billion in financial aid for UK businesses, which will come in grants of up to £9,000 per business property. It has been described by industry body UK Hospitality as “only a sticking plaster”.

Businesses in the other services category, such as hairdressers and salons, find themselves in a similar position, with 48.7 per cent having 0-3 months of cash reserves remaining and a further 20.1 per cent only having sufficient reserves for the next 4-6 months.

The latest lockdown has also come at a bad time for the UK’s retailers. As we reported here, research from Begbies Traynor revealed last month that close to 40,000 UK retailers were in “significant financial distress” prior to the introduction of tougher restrictions before Christmas.

According to Begbies Traynor, 39,232 UK retailers, including almost 11,500 online retailers, were in severe financial distress in the three months to December 9 2020, an 11 per cent increase on the previous three months.

With considerable restrictions in place in many areas in the crucial Christmas shopping period, followed by the current full lockdown, the number of retailers in distress and entering administration is likely to have increased since that study and to continue doing so during the early months of 2021.

Returning to the ONS figures, construction is another sector where cash reserves are low, with 40 per cent of companies having 3 months or less of cash reserves.

However, as opposed to the hospitality sector, construction seems to be on the rebound after being one of the hardest hit industries during the first wave of the pandemic. According to the IHS Markit purchasing managers’ index, December saw the construction sector record its seventh monthly expansion, as businesses continue to adapt to working under COVID-19 restrictions.

Other sectors with dwindling cash reserves include arts, entertainment and recreation, where 30.9 per cent of businesses have between 0-3 months of cash reserves, transportation and storage (30.2 per cent) and manufacturing (27.2 per cent).

Elsewhere, the Financial Conduct Authority (FCA) has warned that thousands of finance firms are also experiencing trouble, as a result of COVID-19 having shifted priorities among investors, along with the impact of Brexit.

Sheldon Mills, Executive FCA Board Member and Director of Strategy and Competition, commented: “We are in an unprecedented – and rapidly evolving – situation.”

“A market downturn driven by the pandemic risks significant numbers of firms failing”, Mills added. “At end of October we’ve identified there are 4,000 financial services firms with low financial resilience and at heightened risk of failure, though many will be able to bolster their resilience as and when economic conditions improve.”

“These are predominantly small and medium sized firms and approximately 30 per cent have the potential to cause harm in failure.”

This widespread distress, which is impacting a diverse array of industries, looks set to worsen before it improves. While certain sectors, such as construction, are experiencing growth having adapted to operating under COVID-19 restrictions, industries relying on high customer footfall, such as retail and hospitality, are unlikely to be as resilient.

With a full lockdown now in place and government financial aid less wide-reaching than during the first wave, many otherwise viable businesses will find themselves in a distressed position during the early months of 2021.

While the presence of several vaccines offers hope of an end to the pandemic, scientists and government ministers have warned that it will still be many months before normality is able to resume. As a result, many businesses look set to see another year of interrupted trading and, as cash reserves ebb away, distress and administrations will continue to increase.


To view the latest distressed UK businesses, click here.

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