R3, have produced their latest Business Distress Index for January 2012 which reports on the state of business as recorded in 500 telephone interviews in December 2011. Interestingly, the index has shown that FEWER businesses are suffering distress than before. Distress indicators are the following:
- Decreased profits
- Falling sales volume
- Shrinking market share
- Pay cuts and freezes
- Loss of regular customers
- Cashflow difficulties
- Suppliers insisting on payment in advance
- Reaching maximum overdraft limit
- Departure of key personnel
- Selling assets
- Borrowing to pay off existing debt
In December 2011, 58% of businesses reported feeling ‘signs of distress’. This is down by 10 percentage points on last quarter 68% and significantly lower than a year ago (77%)
Frances Coulson, President of R3 said"
"Surprisingly, fewer businesses appear to be feeling signs of distress than this time a year ago but this could be the calm before the storm. Many ‘zombie’ businesses have been surviving but not thriving and we know that businesses do not fail in the middle of a recession, but when the economy is recovering. The ‘insolvency lag’ we have seen in previous recessions is slower to materialise this time around, and traditionally insolvencies increase during the recovery phase. This is because a company’s financial outlook starts to improve and creditors stand to achieve greater returns than they would during the downturn. Furthermore, changes in the policies of lenders and the Government could force ‘a clear out of the system’, but whether this will happen in 2012 is doubtful."
It is fair to say that the "insolvency can" is being kicked down the road much like other hard decisions in the Eurozone.
Other interesting statistics are as follows: SMEs are struggling more than larger companies (T/o £20m+) with 34% of them experiencing decreased profits compared to just 6% of larger businesses. Companies that can accept online payments have seen market share drop by only 15% compared to 29% experienced by companies that cannot accept these payments. Greater London has the greatest proportion of businesses that are experiencing distress (66%)
Despite this any sudden shock to a business such as bad weather, tax changes, or regulation can have severe effect. If your business is in difficulty then it pays to act early.