Company Insolvencies – A Major Risk To Micro Businesses

Times are tough for businesses across the UK right now, and company insolvencies are an ever-present threat as companies battle with the cost-of-living crisis, staff retention and other pressures.

The Recruitment & Employment Confederation (REC) recently reported that government figures revealed that company insolvencies were at 22,109, nearly 60% higher than the previous year, and the highest they have been since 2009.

Micro businesses (companies with under 10 employees) are most at risk, and without the right support, these valuable businesses won’t survive. Individuals and organisations should do more to support small and micro businesses, and here’s why.

Why Micro Businesses Are More At Risk?

Small businesses are struggling to stay afloat amid rising costs and market pressures. Micro businesses and larger companies face the same issues, but big businesses can absorb more of the impact from fluctuations in the wider economy, increasing competition, cash flow problems, and changing customer habits.

Adding high operational costs, like skyrocketing energy bills and rent increases, as well as a lack of government funding, to this mix means that small and micro businesses often find themselves more exposed and more at risk of company insolvency. The REC found that many micro businesses were able to get by during the pandemic due to government support, but now this is no longer available, small businesses are feeling the strain.

Why We Should Support Micro Businesses

Small businesses are vital to our economy – in fact, they account for 99% of all British businesses. They also create employment opportunities across the country, accounting for three-fifths of employment and providing half of the UK’s turnover in the private sector.

Micro businesses have the potential to level up the business landscape, improving diversity and bringing financial benefits to disadvantaged communities that need it most. In a recent study of over two million small businesses in the UK showed that businesses formed after March 2020 are more likely to have been started by women and those from minority ethnic groups and disadvantaged backgrounds.

The same study also showed that over half of all micro businesses turn over more than £25,000 a year, and three-quarters of them employ at least one other person. So, if there are more micro businesses in a community, there will be more local jobs for people, an increase in taxes and new shops and business helping to regenerate the community as a result.

Final Thoughts

Micro businesses play a vital role in the UK’s economy and the social mobility of those from disadvantaged backgrounds. However, they often can’t withstand rapid market changes and cash flow issues in the way larger companies can. Because of this, small businesses are often more exposed to the threat of company insolvency.

Supporting small businesses doesn’t just mean that these businesses grow and thrive. It allows micro businesses to continue bringing tangible benefits to those who need it most and contributing to the UK’s economy.

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