05 Jun

Has COVID-19 impacted the number of UK startups? Part 1 of 2

At Mazuma, we’re super supportive of startups and small businesses - we work with them on a daily business, and we really admire their tenacity, dedication and innovation! 

That’s why we thought it would be interesting to review how many new companies have registered with Companies House in the first 6 months of 2020 in comparison to the same period throughout the last 3 years.

Will there be an increase due to the fact that a lot of people are furloughed and have a lot of time on their hands? Or will new businesses drop drastically as people become concerned about the state of our economy and whether now really is the right time to take the plunge and start their own business? 

In part 1 of our 2 part campaign, we’ll be taking a look at data from Companies House from January to March 2020 to see what the numbers say so far.  In part 2 - which will be released in July - we will analyse the numbers for April to June. We expect these numbers to reveal quite a lot in terms of new businesses, and whether COVID-19 really has had an impact on the number of startups coming into fruition! 

Together, these campaigns will give us a bigger picture of how exactly restrictions have affected new businesses in the UK. Will the number drop off the cliff edge, or might we see some surprising results? Keep reading to find out what’s happened so far...

The big picture

This chart shows the overall registered with Companies House (incorporated) - in the first quarter (Q1) of 2020 compared with the previous three years:company incorporations

Please note that the new companies figures are for businesses incorporated with Companies House. As such, they don’t include new sole traders who haven’t registered their business.

As you can see, the number of newly formed companies in Q1 this year is down on last year. Although a decrease of 7% seems large, it’s worth noting that Q1 of 2019 was a bit of a bumper year for new companies too, and 2020 may be reverting to the norm.

Company incorporations table

On the other end of the scale, Q1 of 2019 was also the high-water mark for company dissolutions. The good news is that the beginning of this year has seen a drop in the number of companies winding up.

company dissolutions
What’s clear though is that the net amount of total companies is increasing incrementally year-on-year, to the tune of roughly 3-4%. Total companies refers to any company at any stage. 

total number of companies
When looking at the full year, it’s notable that the number of new startups usually peaks in March and October, and bottoms out in December. But time will tell if Q2 figures in 2020 will see the number tumble off a cliff.

New companies by UK country

This chart shows new companies incorporated in Q1 by UK country. Please note that Companies House data groups England and Wales together.

new companies in england and wales
new companies in scotland
new companies in northern ireland

Again, it’s notable that the spike in new companies in Q1 2019 was a trend that was reflected UK-wide. The number of companies formed this year does - for Q1 at least - seem to be returning to the average.

So arguably there are no stark signs of COVID-19 having a large effect on the Q1 figures. Although it’s worth bearing in mind that it takes time for new businesses to register with Companies House, so there’s likely to be some lag time. The difference between Q1 and Q2 figures is likely to give us a fuller story, so make sure you keep your eyes peeled for our next release. 

How bad will COVID-19 be for new businesses?

Looking at these figures, there’s a sense that what goes up must come down. We’re already seeing that COVID restrictions have had a massive impact on businesses nationwide. According to the Office for National Statistics (ONS), retail sales plummeted by almost a fifth in April.

Several high-profile companies have gone into administration or announced large-scale redundancies. The list of companies reported to have gone under at the time of writing includes high-street retailer Debenhams, Italian restaurant Carluccio's, and rent-to-own retailer Brighthouse. High-street Tex-Mex staple Chiquito has permanently closed most of its restaurants. It’s estimated that the number of companies that have gone bust in March/April is up a whopping 50% on the previous year.

But is the situation hopeless? Arguably not. The ONS has also reported that online sales reached a record high in April, now accounting for roughly 30% of all sales. Many online retailers have had to ramp up their operations to deal with demand.

Possibly unsurprisingly, lockdown Britain has seen a boom in Netflix subscriptions, online gaming, off-licence sales and even digital marketing as businesses are making the jump to move their businesses online. 

So, what does this all mean for new companies?

According to the YouGov consumer behaviour update on 7 May, people are cautious about spending right now. This is true even among those whose jobs are safe and are still receiving a full regular wage. This would suggest that now isn’t the best time to push a new product, but that doesn’t mean things won’t change as things start to return to normality. 

On the other hand, 19-20% of the UK workforce has been furloughed. Although technically this means they shouldn’t be working on other projects, in practice it’s meant that a lot of people have suddenly found extra time on their hands. In previous economic crashes, much of the workforce has ended up going it alone. Although furloughed employees will in theory go back to work with their current employers, it may for some be seen as time to make contingency plans.

In addition, there is hope for new businesses, given attitudes expressed in Britain.

According to YouGov data, more Brits would like to support local businesses once restrictions are lifted. In fact, 85% of Brits are concerned about local businesses failing, and 63% resolve to support businesses much more - the main lifestyle change of choice among those polled.

It’s pretty obvious that 2020 has so far been a remarkable year, to say the least. So we’re not really expecting that this year’s figures will be representative of ‘business as usual’. Although the last few months have seen grim days for many companies, it will be interesting to see which startups thrive in the post-COVID landscape. 

Stay tuned to find out! 

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