2016 UK Company Formation Review
After 2015’s trail blazing year for startups, 2016 fell short. Last year’s performance was worrying for the UK economy when looking at Creditsafe’s data.
2016 saw more businesses close down then they saw start up – a shocking 24% increase in insolvencies compared to the previous year. This was particularly evident in companies that were aged 3 and 10 years (the same category as in 2015) and brought back a frightening reminder that global companies were equally at risk with the closure of BHS and Austin Reed. Even businesses that have been trading for under 3 years saw an increase in insolvencies – 3,000 in 2015 shooting up to 8,000 in 2016.
The highest number of company failures occurred in the last quarter of 2016 – the most insolvencies since Q2 of 2014. With Brexit and the new US presidency, political and economic stability becomes increasingly shaky. The most effected sectors were Business Admin, Construction, Wholesale and Retail, and Professional; Scientific and Technical Activities. County Court Judgements (CCJs) were issued primarily to Professional; Scientific and Technical Activities, Construction, and Wholesale and Retail, and hit over £300,000,000 CCJs in value for the first time since 2013. One can assume that the falling success rate of science related businesses may be related to Brexit and the potential of EU fund withdrawals.
In terms of new company formations, there was a 1% drop overall compared to the previous year. London had less than 3,000 new registered companies compared to its record breaking 198,314 new companies in 2015. It isn’t all doom and gloom on the British startup scene though. The North West, South West, West Midlands and East Anglia saw an increase in new company formations compared to 2015 and Q2 of 2016 trumped that of 2015.
There was also a 17% increase in female directors which may indicate women stepping up with their ideas and making the startup scene more balanced. The average age has bumped back up from 43 to 52 signifying the younger generation are not forming as many companies as the previous year.
Bad debts issued have also been on the rise. These bad debts have primarily been of low value indicating that they were more likely issued to SMEs. Couple this with late payments of invoices from the £100 and £5,000 mark averaging Days Beyond Terms (DBT) of 15 is not an encouraging sign for SMEs.
An interesting insight tells us that 5% of companies in the UK are owned by a foreign company. That’s 185,490 companies with foreign ultimate holding companies. The countries with the highest number of UK companies are Costa Rica, Ireland and the USA.
The startup climate may not seem positive, but it is important to note that only 2% of insolvent companies had a credit limit of over £5,000 which is the recommended amount by Creditsafe. Registering a company has always been a challenging venture, but taking the right precautions will improve chances of success. Blue Sky offers a range of services to keep your company compliant, but the rest is up to you.
We know that the political and economic future of the UK and the world is not concrete, but the dust will settle and forming a company has never been more important. Take the first step and register your company today to impact the UK economy.
All data used is from Creditsafe