Pictured above: John Kelly
Many more businesses are suffering as the economic squeeze
bites, a major report reveals.
The latest Red Flag Alert, produced by corporate recovery
specialists Begbies Traynor, shows a big jump in financial distress
across most sectors.
Those dependent on discretionary spending are being particularly
hard hit.
The effect is widespread, with bars and restaurants hurting - as
might be expected - but so too professional service firms.
A total of 186,554 UK businesses experienced "significant" or
"critical" financial problems in the first quarter compared with
161,601 in the same period last year, up 15 per cent. There is a 26
per cent increase in financial distress compared to the fourth
quarter of 2010 - materially above the 14 per cent rise between Q4
2009 and Q1 2010.
The Midlands region had 23,509 significant problems in the first
quarter - 2,988 of these in Birmingham - compared with 19,676 in
the same period a year ago, a 19 per cent increase. The equivalent
for critical problems was 652 (525), up 24 per cent, with
Birmingham accounting for 95. Compared to the final quarter of 2010
significant problems were ahead 30 per cent with critical problems
surging 72 per cent.
Companies with "significant problems" are those with either a
court action and/or poor, very poor, insolvent or out of date
accounts. Companies with "critical problems" are those with County
Court Judgements totalling £5,000 or more and/or Wind-Up
Petition related actions.
Red Flag pinpoints an overall improvement in some sectors, less
dependent on discretionary spending - Food and Beverage
Manufacturing is down 44 per cent.
However year on year, the number of businesses showing signs of
distress is up by 68 per cent in the Bar & Restaurant sector,
61 per cent in Professional Services, 60 per cent in Leisure &
Culture, and 23 per cent in Sports and Recreation.
John Kelly, senior partner in the Birmingham office of Begbies
Traynor, said: "The number of UK companies facing 'critical'
problems has risen year on year with significant increases across
the leisure sector in particular.
"Compared with our figures for food retail which show little
change, it seems likely that a fall in consumer confidence and
spending power driven by anticipated job losses lies at the core of
the leisure sector's troubles.
"And over 15,000 firms in the professional services sector
are showing signs of significant or critical problems - partly
driven by a stale property and corporate deals market, often the
drivers for an active professional services community. Compared
with the Q1 2010 figure of 9,620 it seems that firms which operate
with a high fixed cost base are finding the current market
conditions increasingly difficult as their revenues fail to recover
and the scope for further cost reductions becomes more
limited."
He added: "High levels of legal actions taken against debtors
indicate that creditors are attempting to maximise cash collection
right across their customer base. The hike in oil prices and
January's VAT increase has made cash flow and credit control
essential priorities for most businesses with some seeking payments
through the courts."
The Report notes that this January marked the beginning of
widespread 90-day consultations on job cuts resulting from
October's Comprehensive Spending Review. A significant number of
public sector staff would have received formal notification of
impending redundancies, also impacting on discretionary consumer
spending.
For more information about Begbies Traynor, please visit their
website here: www.begbies-traynorgroup.com