Report estimates 110,000 SMEs at risk of Insolvency

A new SME insights report by Dojo has revealed that an estimated 110,940 SMEs are at risk of going bust due to having no cash left to support business operations.

The study also revealed that over 30% of SMEs cited rising inflation and high interest rates as their biggest challenge for 2024. Additionally, 1 in 6 SME owners felt unconfident to some extent in their understanding of the term ‘cash runway’ – the number of months a business has until cash runs out.

2% of businesses said that they have no cash reserves. Having no cash reserve puts business owners in a potentially high risk situation, placing the 2%, or estimated 110,940 SMEs, facing this issue in serious financial trouble.

Having no cash runway was the most common amongst smaller businesses with 1-9 employees (10%). For businesses this size, the biggest challenge was financial stress, felt by 41%, more than any other company size.

Nearly 30% of business owners have less than 4 months of cash left. Of those business owners surveyed, 28% revealed they had less than four months of cash left to support their business.

Up to four months of cash reserve was the most common among businesses with 10-49 employees (56%). 30% of the UK’s small businesses have between five and six months’ worth of cash left to support their operations. This is a very healthy cash reserve for businesses to have, according to the accountancy expert who spoke with Dojo.

A cash reserve of this size was most common among businesses within the education industry (41%), businesses with a turnover of £1M – £9.99M (35%) and companies with 50 – 99 employees (34%).

The study revealed that only 2% of businesses have over a year’s worth of cash reserves to sustain their operations. With 98% having under a year’s worth of cash, this indicates a significant vulnerability in long-term financial stability among the majority of businesses and highlights the necessity of support options.

Dojo’s Mya Akbar said “It’s generally recommended that a small business maintains a cash reserve of at least 3 to 6 months’ worth of operating expenses, however, businesses in volatile industries may need a longer reserve, 6 to 12 months.

“Cash reserve is very important for businesses to have, consistent operations, buffer for unforeseen expenses, provides decision making freedom, negotiation leverage, protection within economic downturns, attracting investment and reduced financial stress. Financial stress is the most common challenge (30%) that SME owners are facing at the moment, according to Dojo’s study, further emphasising the final benefit listed.”