More than twice as many companies experiencing ‘critical problems’ since the start of 2008 UK business feeling effects of ongoing economic turmoil IT, manufacturing, rental services and property services sectors showing highest increases .
A staggering 4566 companies faced ‘critical’ problems (those with CCJs totalling over £5,000 or Winding-Up Petition related actions) in the third quarter of 2008 compared with only 791 in the same period last year. Additionally, the number of companies with ‘significant’ problems (those with a court action and/or average, poor, very poor or insolvent or out dated accounts) has nearly doubled from January to the end of September, to 58,564.
In both cases, the September figures for companies in trouble are at their highest this year. Companies on the ‘critical problems’ list increased from 736 in January to 1798 in September – a rise of nearly 250 per cent.
Ric Traynor, Executive Chairman of Begbies Traynor Group, commented, "Our latest Red Flag Alert Statistics reveal September was the worst month yet for UK businesses. The effects of recent market volatility, coupled with the second year effects of the credit crunch conditions, have clearly taken their toll. With twice as many companies now experiencing ‘significant’ problems, we expect to see an even further increase in ‘critical’ business problems as distress escalates over the next year."
"The recent events in the banking sector herald a return to days gone by – much tighter credit terms and businesses needing a stronger case to convince bankers to support them. Stricter lending criteria and the inability to secure funding mean many businesses which might have relied on additional credit to see them through a temporary downturn no longer have that option. Unfortunately, the advent of stricter lending criteria comes at precisely the time when the trading prospects for UK companies are deteriorating rapidly, and when the extreme level of market uncertainty makes writing business plans to support funding options extremely challenging."
The Q3 2008 Red Flag Alert statistics show substantial year on year increases in ‘critical problems’ across all sectors, but hire and rental services (up 643 per cent on Q3 2007), IT (up 627 per cent) and manufacturing (up 622 per cent) are among those areas worst hit.
The construction sector continues to suffer badly, as the housing market downturn affects many businesses beyond builders. Decreasing funding ability has brought the completions market to a virtual standstill across much of the UK. The property services sector has also seen a 600 per cent increase in ‘critical problems’ over this same period last year.
Breakdown of Sectors with Most Significant Changes in Critical Problems
Sector Companies with Critical Problems in Q3 2007 Companies with Critical Problems in Q3 2008 Change
Hire/Rental Services 7 52 643%
IT 22 160 627%
Manufacturing 41 296 622%
Property Services 56 392 600%
Other B2B Services 56 392 597%
Print & Packaging 14 96 586%
Financial Services 16 109 581%
Retail 48 323 573%
Construction 163 1055 547%
Advertising 5 32 540%
Professional Services 23 146 535%
Automotive 19 110 479%
Recruitment 6 34 467%
Others 123 684 456%
Wholesale 42 213 407%
Transport & Comms 53 239 351%
Engineering 22 97 341%
Ric Traynor added, "In the current climate, you'd expect the construction, property and retail sectors to suffer – and our research certainly corroborates that. However, the statistics also show the contagion has spread across many other industries."
"As further economic uncertainty lies ahead, we would encourage all businesses to protect themselves from the downturn by managing their exposure to risk, investing in customer retention strategies, controlling their costs and cash flows, and improving their internal business processes where possible. While this may seem to be stating the obvious, we often find that businesses fail to focus on these basic principles early enough or, in some cases, at all. Today, more than ever, cash is vital, so cash generation and conservation should be top priorities."
"In difficult times, it is important to keep onside all those who have an interest in the business continuing successfully, including banks, customers, creditors, employees and professional advisors. Businesses should keep everyone regularly informed rather than saving up bad news, which can cause panic and irrational action."
For further information, please contact:
Begbies Traynor Group plc
Ric Traynor, Executive Chairman
0161 837 1700
Louise Johnstone/Kim Ladone
020 7360 4900
Red Flag Alert measures corporate distress signals within factual legal and financial data drawn from a wide range of relevant sources, for incorporated companies that have been trading for over a year, with assets in excess of £10,000. www.redflagalert.com
Julie is a law graduate who qualified with Price Waterhouse in 1994. Julie joined Smith & Williamson in 1997 and became a partner in 2001. With Mike Stevenson, Julie set up Middleton Partners offices in Salisbury and Southampton, both of which are now part of Begbies Traynor.
Julie is a member of the Insolvency Practitioners Association and the None Administrative Receivers Association and is a Fellow of The Association of Business Recovery Professionals. Julie deals with all aspects of Corporate Recovery and turnaround work and takes all form of personal insolvency appointments.