Almost a quarter of small businesses have no idea they are about to go into the red until it happens, the study adds.
More than half of small business owners say they want more help managing their finances, with almost a third adding they have lost sleep over money matters as Brexit continues to dominate the UK economy.
Fifty-one per cent of small firms said they “need more help to take control of their finances”, according to a report funded by small business finance broker Funding Options. This equates to 2.86 million of the 5.6 million small businesses in the UK, which employs over 16.3 million people.
The study, carried out by research body Opinium, added that 32 per cent of small business owners and managers have lost sleep “worrying about their business finances”.
This comes as the UK manufacturing sector contracted in May for the first time since July 2016 as stockpiling eased ahead of Brexit, according to an influential survey from IHS Markit/CIPS released today.
Its manufacturing Purchasing Managers' Index (PMI) was 49.4, down from 53.1 in April when it was lifted by stockpiling ahead of the UK's expected EU exit. Any reading below 50 indicates contraction. The report added manufacturing also eased as a result of ongoing global trade tensions.
This follows a report that the number of companies in England and Wales that went bust in the first quarter of the year lifted 6.3 per cent, or 4,187 firms, compared to the final three months of 2018, the government’s Insolvency Service said in April.
The data backed by Funding Options showed that despite these pressures on small firms only 23 per cent have no idea that they are going to go into the red until it happens. It added that just 23 per cent of small businesses formally review once a quarter, while 17 per cent did not carry out any formal review of their accounts at all.
Funding Options, which is run by chief executive Conrad Ford (pictured) and was founded in 2012, and credit information giant Experian signed a deal to launch a cash flow management tool for small business owners.
They said the online tool, called Totem, will allow small firms to monitor VAT bills, manage invoices, check their credit report and score, and identify any upcoming dips in cash flow.
The pair add the aim of Totem is the address “the three main issues all businesses face: money management, accessing finance and scaling the business successfully”.
The two firms are also bidding for £10m from the £775m fund to promote banking competition set aside by Royal Bank of Scotland (RBS), which is part of the European Union conditions attached to the £45bn government bailout of high street bank at the height of the financial crisis a decade ago.
Funding Options, which arranges over £100m of funding to small firms a year, and Experian said if their bid was successful it would allow them to “bring the cash flow management tool to market much sooner”.
Ryan Edwards-Pritchard, managing director of Funding Options, said: “The primary focus of any small business should be on its product and customers and so it’s easy for financial operations to take a back seat. Along with day-to-day challenges, additional factors such as the huge uncertainty around the outcomes of Brexit only add more pressure.”
He added: “It’s really alarming how many small businesses have gone into administration in 2019 already and it’s no surprise that half of UK small businesses are looking for more support with their finances.”
Opinium interviewed 500 people in small firms, who work at middle management level and above between April 10 and 15.