Despite turbulence and uncertainty surrounding Brexit, the rate of small business growth has been positive. Polls show an upward trend in entrepreneurial entry in the UK, with most British citizens wanting to start their own company. The youth of today are more inclined than ever to become entrepreneurs themselves, thanks in part to the growing prevalence of gig economies, influencers and more.

Unfortunately, while more SMEs than ever before are appearing in the country, all that business can’t go equally well. A recent study on the financial status of small businesses in the UK uncovered an alarming result: one in five small businesses in the country fell into overdraft last year.

Cashflow: That old problem

It’s concerning to see such a portion of small businesses rely on overdrafts to manage cash flow, but it’s understandable; late-payments and the ebb and flow of clients remain the primary challenge of any venture in its infancy, and the management of this challenge is a huge factor in the success of a company past its first few years.

There are answers to these issues, of course. Increasingly easy access to funding through business loan brokers and the use of invoice factoring can combine to support a company struggling with cash flow. The fact remains, however, that the 20,000 companies polled in our referenced study showed a five percent increase in the use of overdrafts to stay operational.

A regional issue

Interestingly, the tendency of a company to rely on their overdrafts to survive cashflow issues showed a regional trend. Plymouth, Southampton and Peterborough were the most likely areas to see overdrafts used by small businesses, with Plymouth seeing an alarming thirty-five percent of companies to be in overdraft at the end of a month in the period polled. Food and drink manufacturers were the most likely to be struggling, followed closely by product manufacturers and agricultural farmers.

The cost of failure

Besides the obvious reality of a business failing to stay afloat, the cost of SME failure is significant to the UK. Estimates place the annual economical impact of the approximately 50,000 businesses that fail each year in the UK as being as high as two and a half billion Pounds – an enormous figure that contains an opportunity for economic stimulus in the country if failure rates can be better reduced.

The reality for a small business struggling with this issue is sobering. With the common struggles of making payroll, chasing late payments, managing tax and paying suppliers holding many a young operation down, little is available to invest in growth. As we are seeing with these statistics on overdraft usage, increasing numbers of businesses in the country may be falling into this cycle of stagnation and failure.

If this trend can be addressed, and small businesses better supported by our government, the potential for economic growth and SME success in the UK could prove a decisive benefit during an uncertain period in our country’s history.

Can we help?

We hope you’ve found today’s article informative. If you’d like to speak to the Digiconomy team directly regarding this subject, or would like to learn more about our services, please get in touch right away.