Thousands of businesses are at risk of collapse in 2023 as the economy reels from the cost of living crisis, new research has suggested. According to insolvency firm Begbies Traynor, the number of firms on the brink of going bust jumped by more than a third at the end of last year, while government figures suggest nearly 2,000 firms went bust in December and both the construction and hospitality industries are in a battle to survive.
Bergbies Traynor expects the number of firms collapsing to increase even further due to higher operational costs, repaying Covid loans and customers tightening their belts.
Paul Jones, co-founder of Manchester-based brewery Cloudwater Brew, told the BBC the pressure felt like a “never-ending nightmare”, citing high costs, debt, low consumer confidence and post-Brexit trading problems. He said the personal cost “has been pretty bleak” due to a “heart condition from stress”, adding that his thoughts have turned to closing his business “probably once a month since 2020.
Chef Mary-Ellen McTague, who set up restaurant The Creameries in Manchester in 2018, was receiving rave reviews for her food until the pandemic hit – and her business never recovered.
Following soaring energy costs, Ms McTague had to close the restaurant, saying: “It became apparent that no matter how hard I worked, how hard I tried, how many different tactics we tried to turn it around, we were just never going to get enough customers through the door to make it work. And that was a horrible moment.”
According to Begbies Traynor, the number of companies in critical financial distress – meaning they have more than £5,000 in county court judgments or a winding up petition against it – jumped by 36 percent in the last quarter of 2022.
Partner at the insolvency firm Julie Palmer said all the “support” for businesses “seems to be coming to an end at the same time, with nothing really on the horizon in terms of what might replace them.”
Construction is another area struggling under the weight of the crisis, with more than 100 building firms predicted to go bust every week of 2023, according to research from Red Flag Alert. According to the research, there is around £300m in debt within the UK construction industry – which could rise to £1bn by the start of 2024.
The news follows a report from the government’s Insolvency Service which reported just before Christmas last year that businesses within the construction sector are collapsing at the fastest rate in a decade.
Chief Economist of Red Flag Alert, Dr Nicola Headlam commented that the collapsing construction industry would have severe knock-on effects for future growth, saying: “The post-recession economic bounce back will be hampered by a lack of building companies available for projects in the next growth stage, and a supply chain that will be unable to respond to growth signals.
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“This will choke off growth in the next economic cycle.”
The Insolvency Service reported that in December last year there were 1,964 company insolvencies in England and Wales – 32 percent higher than the previous year and 76 percent higher than pre-pandemic numbers.
Many smaller British retailers are tipped to be bought up by larger brands throughout 2023. Wholesale and retail industries have seen the second-greatest number of insolvencies of any industry, accounting for 14 percent of all insolvencies in the first half of 2022, according to the Office for National Statistics.
Speaking to the Telegraph, Kien Tan, the retail strategy director at PwC, said he expected to see a rise in “opportunistic” deals in which “good brands that are in financial difficulty get saved by strong, well capitalised, UK or international trade buyers who have a strategic intent”.
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Mr Tan added: “It’s going to be tumultuous, but for strong, well-capitalised businesses it is a great time to take market share, to secure your supply chain, or to buy brands or skill sets.”
This has already seen the British business Made.com, an online furniture store, collapse, after being valued at £775 million on the London Stock Exchange in 2021. High street giant Next has said it will buy Made.com’s brand name and intellectual property for £3.4 million, but will not buy any of the remaining stock.
At the time of the business collapse, Nicola Thompson, the CEO of Made.com, apologised to everyone affected by the loss and said the company had “fought tooth and nail” to avoid going into administration.
NatWest boss Alison Rose raised the alarm over firms’ confidence in investing for the future – saying this was the “real concern” as it would “affect future growth.”
However, she added an optimistic note, saying: “If you think we have had a global pandemic, the end of low interest rates, a war in Europe, massive price rises – what we have seen is incredible resilience in UK business.”
“We are also at full employment which is really positive. We are seeing record number of start-ups and banks like ours that is in a strong position to support customers. So it is a tough environment, but we should never forget how resilient business owners have been.”