Companies in 'critical' financial distress in decline

The number of UK businesses experiencing 'critical' levels of financial distress has fallen for the third quarter in a row, while the number of entrepreneurial start ups has risen sharply over the last year, according to research from Begbies Traynor.

The firm's Q4 2013 Red Flag research shows overall 'critical' distress levels down by 1% over the quarter and 4% on an annual basis. Hotels (24%), food retailing (22%) and general retailing (7%) all experienced seasonal reductions in distress levels.

Critical distress levels also fell in the financial services (down by 23%) and professional services sector (21%) over the quarter. On an annual basis there was a 21% reduction in distress in the financial services market and a drop of 12% in the professional services arena.

Julie Palmer, partner at Begbies Traynor, said: 'After a slow third quarter, the important UK services sectors finished the year strongly with increasing confidence, resulting in improved M&A opportunities, as well as a return of investor confidence due to an improving stock market, providing a boon to the professional and financial services sectors.'

Begbies Traynor says analysis of the Red Flag Alert shows over 518,000 new companies were incorporated during 2013 (representing nearly 20% of the total). This compares with around 352,300 which were incorporated during 2012 (13% of the total), suggesting that increasing business confidence is encouraging more entrepreneurial start-ups.

However, despite the generally positive outlook, Begbies Traynor's findings reveals that earlier stage 'significant' distress levels among UK businesses rose by 3% to hit a record high across all sectors this quarter, particularly among the SME community. Reported 'significant' distress levels rose by 16% on an annual basis, and the firm warns that smaller independent hotels and gyms are particularly at risk as larger chains continue to slash prices and develop lower cost models, forcing them to compete through price and operate at unsustainably low margins.

Ric Traynor, executive chairman of Begbies Traynor Group, said: 'A large population of businesses continue to suffer from "significant" distress resulting from funding, management or accumulated debt issues. The next year will be a key period for these businesses to either sort out their problems and prosper or finally reach the end of the road.'

Pat Sweet |Reporter, Accountancy Daily [2010-2021]

Pat Sweet was the former online reporter at Accountancy Daily and contributor to the monthly Accountancy magazine, pub...

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