According to research from R3, the risk of insolvency for businesses in the North East has risen significantly since December 2017.
The effect is being felt across several different sectors and is the result of the same factors causing concern for the country as a whole.
Here, we’ll look at what R3 discovered about the risk of insolvency in the North East, and what this might mean for businesses in the area.
The insolvency and restructuring trade body, R3, regularly releases regional business stability rankings.
These tables assess the number of regional businesses that are at a higher-than-normal risk of insolvency. These businesses are then compared with their equivalents in the UK's other regions.
Research from February 2018 reveals that 37% of approximately 80,000 active businesses in the North East are at a higher-than-normal risk of insolvency.
This figure has gone up by 4% since December 2017 (when it stood at 33%).
The businesses that are most at risk of insolvency in the North East seem to be professional services firms. They went from being 39% at risk in December 2017 to 46% in February 2018.
The region’s manufacturing sector rose 4% and its construction sector rose by 5%. Retail and technology sectors in the North East also have lower levels of business stability than the national average.
However, on a more positive note, the restaurant sector in the North East is outperforming the rest of the country and sits at the top of the business stability table.
This is surprising considering the number of national restaurant chains that have recently become insolvent and entered administration.
The pub and hotel sectors took second and third place respectively for the region.
Why has the risk of insolvency risen?
There are many factors that have contributed to an increased risk of insolvency in the North East, including:
- Rising input costs
- Increases in the national living wage
- Growing business rates
- Inflation and the weaker pound
- Additional costs of pensions auto-enrolment
Changes in customer spending have also had a serious impact on local businesses. People stop spending after Christmas, so businesses don't sell as many products or achieve their profit targets.
Andrew Haslam, Chairman of R3’s North East division and Head of the FRP Advisory’s Newcastle office commented:
"The start of the year can be very difficult for businesses in many sectors, with consumers reeling in their spending after the excesses of Christmas, winter weather keeping people indoors and projects often taking their time to kick off or to get fully back up to speed.”
Sadly, this pattern is being felt across the country.
“The North East has not been alone in seeing such a significant recent rise in the insolvency risk facing its industries, and it’s clearly concerning that this sort of increase is happening so quickly in many different sectors.”
While all UK businesses must be vigilant concerning their financial state, studies suggest that the risk of insolvency may decrease once normal spending resumes.
In the meantime, the North East can celebrate the fact that its hospitality sectors are outperforming the national average. This means investment in opening and improving venues continues to be a viable pursuit.
If you are worried about insolvency, speak to our Company Rescue experts today.