UK’s small firms founded during pandemic face grim outlook as recession looms

Record numbers of people started businesses during the pandemic. Now there are record numbers winding up companies, hit by the stress of being the boss and compounded by the looming recession.

In 2020-21, 810,316 companies were set up, the highest number on record, and another 753,168 the following year, according to figures from Companies House.

But 581,824 companies were dissolved in 2021-22, another record and an annual rise of nearly a third, although some of those companies would have closed down earlier without support during the lockdowns.

This year is looking even worse for many small-business owners struggling with the cost of living crisis. A survey of 1,000 small-business owners by Opinium on behalf of Sage, the accounting software firm, found that 38% were on the brink of burnout, with 17% blaming rising energy prices, rocketing inflation and supply chain delays.

More than half said they were considering giving up altogether, and 54% said their mental health was affected by worries about their ability to hire and retain staff.

Sam Kennett started her digital marketing business, the Social Hand Grenade, at the beginning of the pandemic, after being made redundant.

Portrait of Louise Doherty
Louise Doherty was forced to close her tech startup earlier this year.

“Because of the connections I’d made, I had a few clients I could take on board quite quickly,” she said. “Then lockdown really hit and no one was sure when we were going to come out of it. So lots of people cut back on their budgets, as companies do, and I lost most of my clients. I had to build it all back from scratch as we came out of lockdown.”

Things began to look up, and Kennett even managed to find time to set up Chat Up Fines, a campaign against online harassment, with her colleague Richard Pryor.

“Now, everyone’s worried about this massive recession and they’re all starting to cut back on their budgets again,” Kennett said. Only two clients remain, and she has started applying for jobs to make ends meet.

“I get up at 4.30 every morning and start work at about 5am. Half the time I don’t finish until 7 or 8pm, when my eyes are going squiffy and I can’t read any more.”

Aoife Fitzmaurice, Sage’s vice-president of workplace futures, said that small businesses had demonstrated incredible resilience throughout the pandemic.

“But the ongoing effects of this, alongside rampant inflation and a recruitment crisis, are taking a toll on business owners,” she added.

Louise Doherty was forced to close her tech startup, Yoller, a social networking site, in June. She had raised £1m in investment and launched the site in 140 countries, but the stress of working 19-hour days trying to keep things together left her in tears.

“I was obsessed with work, everything else in my life was put to one side,” she said. “I would often start at 6am, work flat out then crawl into bed at 1am and a few hours later start it all again.

“The moment I knew I was experiencing burnout was when I forced myself to take a holiday – when I came back and saw the mountain of work waiting for me, I burst into tears.”

Soaring inflation and the recruitment crisis would force others to quit, Doherty said. “Overwork is incentivised in all kinds of jobs, and in my startup journey I have seen how the mental health of founders is consistently ignored and overlooked,” she said.

“The scale of the trail of damage breaks my heart. For small-business owners often working alone, the danger is that there is often no one there to say, ‘You are too stressed.’”