Small to medium sized businesses are struggling to grow despite signs of an upturn across the economy and particularly signs of strong recovery at larger UK businesses, warns restructuring specialist Begbies Traynor which has noted a marked increase in SMEs reporting problems in the last quarter
The Begbies Traynor Red Flag Alert for Q1 2014 suggests levels of ‘critical’ financial distress among UK businesses as a whole have decreased by 7% year on year, from 3,283 in Q1 2013 to 3,063 in Q1 2014. Construction, financial services and travel and tourism saw some of the largest declines in distress, falling 15%, 31% and 11% respectively.
However, on a quarterly basis, distress levels have increased by 4%, from 2,933 to 3,063, reversing the positive trend experienced over the previous three quarters when distress levels consistently declined. Begbies Traynor says this can partly be attributed to seasonal factors such as the effects of unusually heavy rainfall across the UK which affected consumer spending.
SMEs now account for 92% of the UK businesses facing ‘significant’ financial distress compared to 89% a year ago. The worst hit area is the bars and restaurants' sector which makes up 98% of that industry’s struggling businesses and accounts for 97% of the general retailers in ‘significant’ financial difficulty.
According to the Red Flag data, the biggest increases in financial distress over the period were recorded by general retailers (up 4%), bars and restaurants (7%), media (16%), hotels (23%) and food retailing (86%).
In addition, the Q1 2014 figures show a 22% increase in the number of small businesses suffering from ‘significant’ financial distress compared with the equivalent period last year, in contrast to larger businesses, which posted a 14% decline in distress levels over the same period.
Julie Palmer, partner at Begbies Traynor, commented: ‘These latest figures are proof that the UK economy hasn’t just turned a corner, but is getting firmly back on its feet. But the fact remains that a growing number of SMEs remain at significant risk of falling into distress and need greater support if they are going to turn their fortunes around.'
Palmer said that in the worst performing industries such as retail, bars and restaurants, which are highly dependent on levels of consumer spending, smaller enterprises are unable to compete with the buying power of larger chains and have struggled to match the discounts they offer. In addition, they face continuing problems in accessing bank finance to fund further growth.