This represents the thirteenth consecutive quarter that corporate financial distress has risen on a year on year basis

This represents the thirteenth consecutive quarter that corporate stress has risen on a year on year basis

New research from Begbies Traynor shows that more than 275,000 companies were showing signs of ‘significant’ financial distress at the close of 2016, representing the thirteenth consecutive quarter that corporate stress has risen on a year on year basis.

According to Begbies Traynor’s Red Flag Alert research for Q4 2016, which monitors the financial health of UK companies, 276,518 businesses are experiencing ‘significant’ financial distress at the end of 2016; an increase of 3 per cent compared to the same period last year (Q4 2015: 268,898 companies). On an annualised basis, the last time that ‘Significant’ distress fell year on year was in Q3 2013.

Of the companies experiencing financial distress during Q4 2016, 91 per cent (254,857) were SMEs, indicating the scale of the problems faced by the UK’s smallest businesses. Meanwhile, nearly a quarter (23 per cent) of the country’s struggling businesses are in London, where 64,764 companies finished the year in a state of ‘significant’ financial distress; an increase of 5 per cent on Q4 2015.

This rising distress comes at a time when the number of UK company incorporations is growing substantially, with more than 685,000 start-ups joining the economy during 2016 alone – the highest level since the start of the financial crisis in 2007.

However, Begbies Traynor highlights that many of these start-ups are short lived ‘lifestyle’ businesses often forced upon people by changing circumstances, such as the loss of paid employment. For example, of the c.470,000 companies incorporated during 2011, almost 57 per cent have since been dissolved, struck off or have entered formal insolvency procedures, and another 7.5 per cent are not even trading.

Julie Palmer, partner at Begbies Traynor, says, ‘With the World Bank revising down its growth forecasts for the UK, alongside reports that the UK’s trade deficit widened to a worse-than-expected £12.2 billion in November, our data shows that levels of financial distress continue to rise across the country, most of all within the UK’s important SME community, which is widely regarded as the lifeblood of the economy.

‘The scale of SME distress at the end of 2016 just goes to highlight the fragility of UK micro businesses, many of which are underfunded, lack management experience or are flawed in concept.

Although record numbers of new start-ups continue to join the economy each year, a large proportion don’t stay in business for long, with growing numbers of aspiring entrepreneurs returning to more established businesses as soon as the opportunity arises.’

Ric Traynor, executive chairman of Begbies Traynor, adds, ‘Despite finishing the year in a state of heightened financial stress, it is too early to say that this is reflective of an underlying problem that is likely to continue or negatively impact 2017, as numerous macro indicators suggest that the New Year has got off to a reasonable start.

‘EU exit negotiations and US trade policy could be major factors affecting business this year either for better or worse whilst rising inflation and fluctuating exchange rates are likely to have a negative impact. Either way 2017 could well be a defining year for UK business.’

Further reading on financial distress

Source link