July 2, 2009
Recession Will Hit Small Business Hard
Almost one hundred businesses will have to close everyday due to rising unemployment and falling disposable income growth.
In fact, the recession will help to drive business failures up to a record 36,200 this year, according to the latest report by accountants and business advisors, BDO Stoy Hayward.
According to the report, low interest rates and policy measures aimed at boosting the economy are not likely to halt the rate of UK business failures until at least 2011, paving the way for a far worse picture to come in 2010, where a staggering 40,400 firms, or 111 businesses everyday are expected to go under.
It says cautious shoppers will cause a 4% decrease in consumer spending this year, which will impact sectors most reliant on disposable income, including retail, leisure and personal services. And despite falls in mortgage costs and lower inflation the contraction in consumer spending will mean that 4,300 retailers will become insolvent in 2009, according to the report.
With the UK economy shrinking by 1.9% in the first quarter this year, the report forecasts a 4.5% contraction in economic output in 2009, making this the steepest reduction in economic activity since the 5.1% fall in 1931. This will push up business failures in sectors relying on business-to-business demand, where 2,500 businesses are expected to fail this year.
Also reflecting the cutback in corporate investment and the decrease in de-stocking are failures in the manufacturing sector, which is once again the worse hit by the economic downturn. Despite some tentative signs of optimism right now, the number of business failures predicted in the sector for 2009 is 2,900, an increase from the 1,600 actual failures seen in 2008.
Shay Bannon, head of business Restructuring at BDO Stoy Hayward says: “Business failures in Great Britain are rising unabated as the fall-out of the economic downturn becomes ever clearer. Consumer spending is set for a steep contraction in 2009 and households will continue to be hit by rising unemployment, weaker earnings growth and reduced perceived wealth levels due to declining asset prices."
These are grim figures indeed. But it needn't worry prepared businesses. Those that have looked at their finances, taken some professional help and created contingency plans that work. This means cutting down spending, outgoings and arranging debt so as to cost as little as possible. If you haven't prepared your small business for the worst, talk to a professional adviser right away before it's too late.
SOURCE: BDO Stoy Hayward, 24/06/09
Keep up with the latest news and comments on Self Employed Mortgages at the Self Cert Mortgage Blog