The latest Red Flag Alert reveals mixed results of economic growth in the corporate sector over the last 2013 quarter.
While the overall number of companies in ‘critical distress’ fell 1% in the last quarter, the number of companies in the early stages of financial trouble rose by 3%.
Businesses with severe financial problems fell by 1%, falling from 2,951 in Q3 to 2,933 in Q4. As expected, retail and the food sectors benefited from festive break trading while the financial and support services sector also saw a significant fall. The number of financial companies in critical distress fell by 23%.
Comparing annually, there was a 3% fall in critically distressed companies overall, however each sector has provided different results. For example, the retail sector saw the end of 2013 finish on a positive note, however compared to the year before, figures showed a percentage increase in companies suffering.
Julie Palmer of Begbies Traynor stated, ‘when compared to Q4 2012, levels of ‘Critical’ distress among general retailers were actually 16 percent higher this year , as physical retail volumes struggled to keep pace with last year’s excessive spending resulting in heavy discounting across the high street’.
The number of new businesses starting up was more than 518,000 in 2013, a welcoming sign of growing confidence. Begbies Traynor believes one of the reasons for this is the continuing wave of businesses starting online to save costs.
Interestingly, the number of small to medium companies at the early stage of financial distress is on the rise. The Red Flag Alert revealed 224,579 companies were struggling in the fourth quarter of 2013. These are the companies that are getting into a considerable amount of debt but have the time to seek action and potentially save the business.
Worryingly, figures show there was a 16% annual rise of companies in ‘significant distress.’ These small businesses must act now in order to stay afloat by seeking debt arrangements, restructuring the company or going down more formal routes, like a CVA.
Overall, the economy is strengthening, slowly but surely. Business owners are continuing to gain further confidence and more new businesses are coming into the fold. However, these findings should also be a warning to small businesses to keep a good grip on cashflow and potential debt. Directors and accountants must research all the options available if the company is in financial trouble - more often than not, there is a solution.