Nearly 3 million UK small businesses struggle as Brexit bites

• Half of UK small businesses want more help to take control of their finances, equating to 2.86 million who are struggling across the country.

• At a time when the number of companies entering administration hit its highest level in five years, a third of small business owners are losing sleep over their finances.

• Worryingly, one in four small businesses owners is unaware of their financial troubles until their bank account is in the red.

• Funding Options and Experian are partnering to launch a new cash flow management tool to help small business owners get a much clearer picture of their financial situation.

Research by Funding Options, the UK’s leading business finance marketplace, has revealed that half (51%) of UK small and medium business (1) owners need more help to take control of their finances – equating to 2.86 million small businesses who are struggling alone. The results also reveal that a third (33%) of small business owners have previously found themselves in financial difficulty with a similar proportion (32%) saying they have lost sleep worrying about their business finances.

There are 5.6 million small businesses in the UK (2), employing over 16.3 million people, making their success crucial to the UK economy. Following months of uncertainty around Brexit, the news that the first quarter of 2019 saw company insolvencies reach their highest levels in five years (3) demonstrates that it’s more important than ever that businesses are in full control of their finances. Yet nearly a quarter (23%) have no idea that they’re going to go into the red until it happens, increasing to nearly half (46%) of business owners aged under 35. Only half (53%) regularly forecast their finances to help them keep track of cash flow.

With small business owners devoting their energies to their products and services, having the time to focus on their finances is often a luxury they do not have. Just 7% of small businesses review their finances more than once a month, with nearly a quarter (23%) only doing so once a quarter. 17% of those surveyed said that they don’t have any formal reviews of their business finance at all, and this was most common among sole traders with nearly half (46%) admitting this to be the case.

Ryan Edwards-Pritchard, Managing Director of Funding Options, said:

Being able to access funding when it’s needed is also key to a small businesses’ success but the study revealed that three in ten (28%) small businesses have struggled to access funding from mainstream lenders, with one in five (21%) even having to approach their family and friends for money after being turned down by the banks.

To help small businesses get control of their finances, Funding Options has partnered with Runpath, a part of Experian, to develop a cash flow management tool. The tool – called Totem – will be available for free and, by using Open Banking and Management Account data, will allow small businesses to get on top of VAT bills, manage invoices, check and understand how to improve credit scores, and identify any upcoming dips in cash flow. It aims to resolve the three main issues all businesses face: money management, accessing finance and scaling the business successfully.

Together, Funding Options and Experian are bidding for a share of the Banking Competition Remedies Capability and Innovation fund4, part of the RBS Alternative Remedies Package designed to improve the financial products and services available to small businesses. If successful, the funding will allow Funding Options to bring the cash flow management tool to market much sooner and to reach even more small business owners.

Methodology: Between 10 and 15 April 2019, Opinium, on behalf of Funding Options, interviewed 500 people of middle management level and above within SMEs.

1. “Small business” refers to SMEs with fewer than 250 employees

2. Federation of Small Business statistics

3. Company insolvency statistics - 2019 Q1 

4. Alternative Remedies Package

In 2009, the European Commission approved a number of state aid measures granted to The Royal Bank of Scotland Group plc (RBS). This approval was given on the basis of a restructuring plan submitted by RBS and a number of commitments given by the UK Government in 2009 and subsequently amended in 2014, including the divestment of a part of RBS’ branch-based retail and small and medium-sized enterprise business, which later became known as ‘Williams and Glyn’ (the “Divestment”).

As a result of considerable challenges in achieving the Divestment, the UK Government proposed substituting the 2014 commitments with a revised package of measures with the aim of achieving the objective of promoting competition in the market for banking services to SMEs that lay behind the Divestment. The Alternative Remedies Package was agreed in principle in July 2017 and formally approved by the European Commission on 18 September 2017.

The package consists of two elements:

• £425m Capability & Innovation Fund to provide grants to Eligible Bodies to help them improve their banking capabilities for Small and Medium-sized Enterprises; and

• Up to £275m for an Incentivised Switching Scheme to provide funding to Eligible Bodies, in order to incentivise RBS’s Williams and Glyn SME banking customers to switch their business current accounts to the Eligible Bodies.