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One-in-Four businesses showing signs of distress

23 October 2017

According to the insolvency trade body R3  25% of businesses are now experiencing signs of distress which is up from 20% in April of this year.  The research done in conjunction with BDRC Continental has also shown fewer businesses are reporting growth.  In April 2017 64% of businesses showed growth, this is now down to 53% in September

‘Decreased sales volumes’ was the sign of distress reported by the greatest proportion of firms surveyed, at 12% – up from 7% in April 2017.  11% of firms said that they were using their maximum overdraft each month which is up from just 4% this time last year.  However it should be noted that banks have got into the habit of reducing overdrafts as part of their own restructuring.   

Adrian Hyde, President of R3 said: “There’s been a very firm increase in distress levels over the last 18 months, alongside a drop in growth. Businesses have moved on from record high growth levels and record low distress levels, and it looks like a new phase of the economic cycle has started.

“With sales volumes falling for a larger number of companies, and with more firms reaching the limit of their financial facilities, the economic picture is getting murkier. For a lot of companies existing on the edge, just one shock – such as a rise in the cost of borrowing, the failure of a major supplier or customer, or a fall in consumer confidence – could be enough to push them into insolvency.

At KSA Group we are seeing a rise in the number of enquiries from director's at businesses that are worried about their options.  One of the main reasons businesses are finding it difficult is the rise in some costs, most particularly minimum wage and business rates. 

Signs of growth on a downward trend

The number of companies saying they are investing in new equipment experienced the sharpest drop between April and September, from 33% to 22% – a fall of one-third. With many business leaders concerned over the prospects for UK plc, company directors may be taking a lead from predictions of trouble ahead and building up cash reserves to take them through tougher times.

Adrian Hyde commented: “With only just over a quarter of firms growing their sales volumes, down from nearly four-in-ten a year ago, the overall outlook for the UK’s business community is more downbeat than it has been for some time.

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