Research from the House of Commons library shows that the number of private sector businesses in the UK has dropped for a second successive year.
As of January 2022, there were 5.5 million businesses within the private sector, signifying a 1.5% drop off from 2021 figures (following a 6.5% drop between 2020-2021).
UK business statistics show that the declining number of private sector companies has been driven predominantly by small businesses with no employees – the largest segment of British businesses.
Where in the UK has there been the largest decline in small businesses?
Between 2021-2022, the greatest percentage decline occurred in Yorkshire and The Humber, accounting for a drop of 7%. The East of England and the South East were not too far behind, representing a 4% fall in registered businesses.
However, not every region in the UK saw a decline. Across the same period of time, there was a 5% increase in the number of businesses in Wales – the largest of any region within the UK.
Northern Ireland and the South West of England also saw an increase in the number of private sector businesses, posting an additional 4% and 3% respectively.
Why has there been such a decline in the number of UK small businesses?
Small businesses with no employees account for 74% of all UK companies.
There is a clear correlation between the declining number of private sector businesses operating within the UK and the start of the global COVID pandemic.
This catastrophic world event created a next to impossible environment for many businesses to operate, with commercial activity all but suspended for thousands of companies.
However, the COVID pandemic proved to be just the first wave of a tsunami of business pressures – that have been felt most by SMEs – as 2022 has seen a sharp rise in inflation, increasing cost of goods and services, and a cost-of-living crisis that has dramatically reduced consumer spending.
Macroeconomic shockwaves like those mentioned above, typically cause short-term cash flow problems for small businesses. When revenues decline, businesses still have an array of fixed costs waiting for them, such as rent, payroll and settling supplier invoices.
Compounding this tsunami of business pressures is the fact that accessing financial support has become particularly difficult for SMEs.
Over the last 5 years, lenders have become increasingly frugal with their financing of small businesses, often requiring large personal guarantees from business owners, when applying for working capital.
Additionally, the speed at which banks and traditional lenders can finance small businesses does not align with the reality of operating as a small business.
Whilst many small businesses have a need to access short- to medium-term financial support fast, in order to plug funding gaps, banks and traditional lenders can take up to 3 months to approve financial support for these types of companies.
Given these factors, it is no surprise that 29% of small business owners have resorted to plugging their business funding gaps with personal savings, when they have not been able to access business finance that works for them and when they need it the most.
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