A record number of small business owners are planning to close their firms over the coming 12 months, putting the UK on course to lose more than a quarter of a million businesses, according to the Federation of Small Businesses (FSB).

In a recent poll, the FSB surveyed 1,401 small firms for the Q4 2020 Small Business Index (SBI) at the end of December 2020.

FSB: Small Business Index

The SBI covers a range of economic indicators, including: small business confidence, employment and wages, exports, productivity, spare capacity, finance and investment.

Just under 5% of the 1,400 firms surveyed for the study say they expect to close this year. The figure does not reflect the threat of closure faced by those hoping to survive despite having frozen their operations, reduced headcounts or taken on significant debt.   

The proportion is at an all-time high for the SBI, which launched in the wake of the financial crash, and is more than double that recorded at the same point 12 months ago. There are 5.9 million small firms across the UK, according to the Department for Business, Energy and Industrial Strategy (BEIS).

The UK SBI confidence measure stands at -49.3, down 27 points year-on-year. The reading is the second-lowest in SBI history, second only to that recorded in March 2020. The vast majority of those surveyed (80%) do not expect their performance to improve over the next three months. 

Close to a quarter (23%) of small firms have decreased the number of people they employ over the last quarter, up from 13% at the beginning of last year. One in seven (14%) say they’ll be forced to cut numbers over the next three months. BEIS estimates that 16.8 million people work in smaller firms across the UK.

The proportion of small businesses forecasting a reduction in profitability for the coming quarter has spiralled over the past year, rising from 38% to 58%. The figure is at an all-time high.    

Almost half (49%) of exporters expect international sales to drop this quarter, up from 33% at this time last year. 

Mike Cherry, the national chairman of the FSB, said: “The development of business support measures has not kept pace with intensifying restrictions. As a result, we risk losing hundreds of thousands of great, ultimately viable small businesses this year, at huge cost to local communities and individual livelihoods. A record number say they plan to close over the next 12 months, and they were saying that even before news of the latest lockdown came through. 

“At the outset of the first national lockdown, the UK Government was bold. The support mechanisms put in place weren’t perfect, but they were an exceptionally good starting point. That’s why it’s so disappointing that it’s met this second lockdown with a whimper.”

The SBI is conducted by independent research company Verve. The headline SBI confidence figures are based on a weighted index, with the share of firms reporting ‘much improved’ or ‘much worse’ confidence allocated double weighting.