I have been rifling through 2020 insolvency data to try and understand and predict the likely forecast for 2021. Cutting through all the jargon, here are my findings simplified.

How did the United Kingdom fair for insolvencies in 2020?

You may be surprised to learn that insolvency and / or insolvency procedures in each quarter of 2020 were fewer in numbers compared to their counterparts in 2019. What is also telling is that, overall, insolvency procedures throughout 2020 dropped as the year progressed.

Why were insolvencies in 2020 lower than in 2019, despite a global pandemic?

It’s a good question. Three lockdowns and four tiers later, it seemingly looks like businesses on the whole managed to scrape through. Here are some of the reasons we can speculate why.

Well-run businesses are best placed to weather the storm

The best businesses are run by the most astute and intelligent Company Directors who are disciplined and plan for rainy days. This means sticking to budgets, negotiate favourable contracts and transactions with suppliers and customers and regular planning, review and forecasting.

Some businesses / sectors are pandemic proof

Many organisations and industries are pandemic proof. The most obvious that springs to mind is construction which has largely been given permission to continue come what may.

Businesses that adapt

Quite a handful of businesses adapted to keep up with the times. For example, communication coaches, personal gym trainers and other companies such as those in the events sector transitioned to delivering services online using platforms like Zoom and Skype. Other companies, when forced to work remotely were pleasantly surprised at how well that worked out for them and so decided to shut up shop and continue in that way, saving costs.

A sizeable majority of people affected were not registered businesses

Arguably creatives were the hardest hit by the pandemic, because the Government did not really cater to them. Creatives are people like musicians, actors and others in the performing arts. They work for themselves as freelancers and are not registered as ‘companies’ so when they lost out, they did not make the Government statistics.

Insolvency can be a long process

Insolvency, including any specific type of insolvency procedure such as Company Voluntary Arrangements, Administrations and the like are not initiated and completed overnight. Some can be drawn out for months on end. It is likely that quite a few businesses are going through the motions so the true picture painting the impact of Covid-19 may not be realised until later on in 2021.

Government help

Undoubtedly, the biggest reason why insolvencies in 2020 were surprisingly low, compared to 2019 and given what a devastating year 2020 was, is the unprecedented amount of Government help on offer:

• The furlough scheme enabled companies to stay above water with the Government providing help in paying wages
• The Government reimbursed companies who had to paid sick leave to employees
• The Job Retention Bonus, which is effectively a grant of £1,000 per employee, given certain conditions are met
• Various grants for the self-employed
• The introduction of the Corporate Insolvency and Governance Act (CIGA 2020). A series I covered in three steps, starting here.
• Various loan schemes: bounce back loans, coronavirus business interruption loan schemes and covid-19 corporate financing facility.
• Eat out to help out.

To learn more about these schemes and its eligibility, give me a call on 020 7240 2000.

Covid-19 has debilitated even the best-run businesses, so there no doubt that the sheer level of never-before-seen Government help kept a lot of businesses afloat and continue to do so.

The help is great, but here is my concern. What happens when the help stops?

The 2021 insolvency picture

I fear 2021 will see a rise in insolvencies, especially as Government help recedes. All companies who have exclusively managed to stay afloat on Government help alone will be compelled to use conventional insolvency and debt recovery proceedings. This alone will mean a sizeable increase in insolvencies.

According to Deloitte GDP is expected to fall by around 12 per cent in 2021. This will naturally result in companies being wound down.

What can business owners do?

Business owners need to start planning, cost saving and efficiency increasing from now. Company Directors need to learn to implement measures to make the Company leaner and ready to survive the difficulties yet to come.

How can they do this? In a nutshell they need to perform a comprehensive and detailed business review to analyse and microscope all aspects of business operations from cash flow to HR and identify where they can become leaner without compromising on the quality of their output. There are so many facets of a business review and I started talking about the importance of reviews as early as when Covid-19 first arrived at the scene.

Usually, business reviews will lead to cuts of some sort, but you want to make the right ones and not do anything unnecessary.

Complimentary business reviews

I am offering complimentary Covid-19 business reviews. All I need from you are a few basic details and I’ll do the rest. These are really helpful, and you will get an extremely good idea of where your business is at health wise and what you can do to get through a tricky 2021. Moreover, it’s free with no strings attached so you don’t have anything to lose.

Sign up here.