What do their directors need to know?
For instance, it’s common sense for builders, scaffolders and cement pourers to be classed together under construction but what about a travel agent and a security guard?
Or a car leasing company and a landscape gardener? Or an employment agency and a bouncy castle hire business?
They all come under the seemingly disparate title of administrative and support businesses which is a broad umbrella title that covers amongst others:
- Rental and leasing businesses including cars, machinery and household goods
- Temporary and permanent employment agencies
- Travel agencies and tour operators
- Security and private investigation services
- Building and landscape services including gardening and cleaning
So now we know which sort of businesses we’re talking about – how did they collectively manage during the year of lockdowns and afterwards?
Less is more
The initial figures show that in the year leading up to the first lockdown being implemented – Mar 2019 to Feb 2020 – there were 1,798 insolvencies involving businesses in the administrative and support sector.
The immediate 12 months afterwards – Mar 2020 to Feb 2021 – saw 1,421 administrative companies close.
Although this is 377 less, it’s still larger than might have been expected considering the temporary halt on creditor actions like winding up petitions and the range of additional support made available to businesses over the past 18 months.
1,421 is a larger number than the losses reported by the hospitality and retail sectors, which were most popularly believed to be the worst affected in the pandemic with 1,378 hospitality companies and 1,355 businesses in the retail sector becoming insolvent.
According to official statistics supplied by the Insolvency Service, there have been an additional 358 insolvencies in the administrative sector since March this year which takes the total number since lockdown to 1,779 – which is 118 a month or 29 a week shutting their doors.
Did bounce back loans soften the blow?
The coronavirus jobs retention scheme or furlough, did help a lot of administrative businesses keep staff rather than forcing them to be made redundant.
As the travel industry ground to a halt and nightclubs and other sectors that would usually require security staff didn’t need them, administrative businesses with no income needed support and quickly.
The bounce back loan scheme and CBILS was rolled out for just such a purpose and these companies made use of it.
The number of loans taken out by administrative services was 102,946 – more than the collective borrowing of the manufacturing, real estate and transportation business sectors.
The total amount borrowed was £3 billion, which is an average borrowing amount of £29,141 per company.
Under the most conservative official estimates, it’s expected that 15% of the total lent to the industry would remain uncollected would be £450 million but if the default rate rose to even 40% then this figure would also grow to £1.2 billion.
Since pandemic restrictions began to be lifted, administrative businesses can begin trading again and supplying their valuable services to customers but there are storm clouds gathering on the horizon.
The furlough scheme is finally being wound up at the end of September which means businesses either have to bring their furloughed workers back on full pay or implement redundancies.
Any bounce back loan or CBILS arrears will continue to grow if they’re not being paid and any outstanding VAT arrears from their suspension in 2020 are now due too.
Creditors will also be able to begin to take action to reclaim unpaid debts from September 30th too, allowing them to seek statutory demands and winding up petitions if not paid within 21 days of receipt.
Chris Horner, Insolvency Director with BusinessRescueExpert.co.uk said: “Administrative businesses have had one of the worst hands dealt to them during the pandemic and lockdown.
“A lot of them didn’t qualify for any support other than bounce back loans and repaying these could become one of the biggest challenges businesses face this and next year if they aren’t able to trade like they did before.
“The travel industry is still in flux to put it mildly, hospitality and nightclubs are just reopening but will need to comply with new rules and regulations shortly with little guidance being given to their security on how they will be implemented.
“The shakeup in the commercial property sector will have big knock on effects for cleaning and landscaping businesses that service them so will make their financial forecasting nearly impossible to predict too.
“One thing administrative and service businesses can do is adapt and adapt quickly so they can use their talent and experience to take advantage of the little time left before September 30th and get some professional advice on how they can help themselves before so many rules change.
“A recovery strategy can work but only if it’s created and implemented now. This can include managing any unsustainable debt including bounce back loan arrears, VAT arrears or CBILS.”
A lot of people thought that by the end of September 2021, if not business as usual, we’d be at a stage of business getting back to usual.
But for many companies and sectors – especially administrative and support businesses – it really isn’t.
Debts have increased, more are appearing and the last protections from creditors are days away from being removed.
There could still be a practical way forward for a business in this position but only if they take the first step and get in touch to arrange some practical, professional advice.
We offer directors and business owners a free, initial consultation to set out their position and once we get a full understanding of the issues we face, we can work with them to create a strategy to meet and defeat these challenges.
But get in touch today because after September 30th, the choices might be harder still.