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Spiralling Overheads Leaving Small Businesses ‘On a Knife Edge’

By Jon Munnery
21 January 2022

Rising costs and eroded profit margins are leaving thousands of small businesses on a financial knife edge and facing the prospect of potentially entering insolvency.

That’s according to the Federation of Small Businesses (FSB), which is calling for policymakers to expand the scope of their support to small scale operators across the UK.

“Thousands of small businesses are on a knife edge following a difficult and disappointing festive season, with surging inflation now eroding margins,” says Martin McTague, the FSB’s national vice chairman.

“The fresh support that the government has promised to many firms is taking too long to reach the grass roots, and will not be enough to protect the futures of many when a jobs tax hike and business rates bills hit in April.”

Mr McTague’s comments come in response to a statistical release from the Insolvency Service, which show that almost 1,500 businesses became insolvent in England and Wales during December 2021.

Those figures represent almost a 20 per cent increase in overall corporate insolvency rates in December last year compared to the same month of 2020, and a 33 per cent rise compared to December 2019.

According to the FSB, there were close to 400,000 small firms and sole traders forced out of business over the course of 2020 and there are fears about what the comparable figures might eventually prove to be for last year.

“The government should take action to address spiralling overheads, to avoid history repeating itself,” says Mr McTague.

“Today’s figures [on corporate insolvency rates] are a stark reminder that the nascent recovery from the pandemic needs to be nurtured, something that will be endangered if we lose too many of our small businesses.”

The FSB has repeatedly highlighted the issue of late payments of invoices from big companies to their smaller suppliers as a major problem facing SMEs across Britain.

Rising costs are clearly an issue growing in significance for small firms as of early 2022 and businesses across industries are understood to be struggling increasingly to fill the job vacancies they have available.

“The tax rises coming in April could prove the final straw for many,” according to Mr McTague.

“The government must seize the opportunity to make the forthcoming Spring Statement as small business-friendly as it can, rowing back on its damaging tax hikes and committing to helping smaller firms make it through continuing turbulence.”

Jonathan Munnery
Insolvency & Restructuring Expert
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