According to data from Begbies Traynor’s Red Flag statistics arm, thousands of tech SMEs are now categorised as being in severe distress
Thousands of Information Technology (IT) SMEs in the UK are in financial distress with 185,000 jobs at risk. The figures, from Begbies Traynor, are for the Q2 this year and reveal a 41% rise in IT small and medium-sized enterprises (SMEs) in significant financial distress since the first lockdown.
Thousands of tech SMEs are now categorised as being in severe distress, according to data from the business rescue and recovery business company’s Red Flag statistics arm, which monitors warnings signs that companies could be in trouble.
Shaun Barton, national online business operations director at Begbies Traynor Group, said the tech industry had been “on a high” before Covid-19, but the disruption caused by the pandemic had slowed things down. During the past 18 months, Begbies Traynor has been involved in the liquidation of 109 UK tech SMEs.
When you look at 2020, everything was looking rosy, said Barton. Even at the start of the first lockdown, there were lots of job offers in UK tech and lots of venture capital interest. It was probably the second lockdown when the numbers of IT SMEs in distress began to increase.
Smaller tech SMEs, including startups, had been hit the hardest, he said. They want to invest, but they just don’t have the money and getting funds is really difficult at the moment.
The number of startup IT firms set up after 2017 that are in significant financial distress has risen by 37% in the last quarter because of the pandemic, show figures from Begbies Traynor. 9,289 of these businesses are in distress, compared with 6,779 at the end of 2020. There were 3,732 businesses in distress at the start of the first lockdown last year.
Things are much worse now compared with the start of the first lockdown due to the knock-on effect of slumping sales across the world and because large companies are preserving their cash.
As small firms rely on face-to-face meetings and events to get reach out to potential customers, a lack of such opportunity has become a challenge for them.
Barton said that in contrast, larger tech companies have taken advantage of the lockdowns because they have been able to transform. He said the rapid increase in take-up of the latest technologies such as remote working systems, as businesses attempted to operate during the Covid-19 lockdowns, has also benefited larger tech companies, mainly global tech firms with a footprint in the UK.