Almost a quarter of a million of the UK's smallest businesses are at risk of failure, according to simplybusiness.co.uk.
The news comes as Bank of England governor Mervyn King concedes that the UK economy is already in a "deep recession" and it is set to worsen – the Bank predicts GDP to contract by six per cent this year.
Small businesses have been some of the worst hit by the recession so far, and as the economy deteriorates, so too will conditions for struggling companies.
The Simply Business Insight study conducted by simplybusinesses.co.uk highlights the extent of strain put on small businesses by a worsening recession.
More than one in five firms fears for the future of the business, the study revealed, which equates to 475,700 jobs being at risk and a loss of £42.5billion to the UK economy.
More than half of small leaders are feeling extreme pressure to survive this business year, while 67 per cent have had their confidence knocked by the current economic climate.
Commenting, managing director at simplybusiness.co.uk
, Tony Deacon said: "Our smallest firms are the backbone of our economy, representing 98 per cent of all UK enterprises and employing over nine million people.
"Our research reveals the critical pressure an alarming number of these firms are under as the recession bites deeper."
As 2009 looks set to deteriorate economically, 34 per cent of entrepreneurs expect to be hit by a further fall in consumer spending, while 29 per cent believe late paying customers will present a major hurdle.
Mr Deacon added: "There is no doubt that 2009 will be a tough year, particularly for small businesses.
"Smaller firms will need to look hard for operational cost savings, and be ruthless when chasing payment to prevent fatal cash flow shortages."
Worried about your business? Compare business insurance deals
© Fair Investment