More businesses regularly using maximum overdraft
Research shows a nine point increase in businesses frequently using their maximum overdraft facility compared to last quarter.
Businesses are experiencing increased signs of distress compared to last quarter, with 22% making frequent use of their maximum overdraft facility - according to insolvency trade body, R3. The quarterly Business Distress Index shows that more businesses are also experiencing decreased profits, which at 43% is an eight point increase on last quarter.
However, a year since the first Business Distress Index was carried out, a year on year analysis of the results shows a mixed picture. Distress signs associated with cash flow are higher than September 2010 – the proportion of businesses experiencing difficulty paying invoices is up three points to 17% and the number taking on new borrowing to pay down existing debt is up two points to 8%. This is compared to a lower proportion of businesses seeing decreased profits, down six points and those experiencing a loss of regular customers down eight points to 18%.
For the first time, the report also asked respondents if they are experiencing a number of growth indicators. The results, which mirror the distress signals for last quarter, found that only 22% are experiencing increased profits, compared to the 43% experiencing decrease profits. The growth index also found that and one in five (20%) have seen their market share grow, compared to nearly a quarter (24%) who have seen their market share fall. The results found that business in the services sector are more likely to be experiencing growth than those in the manufacturing sector.
R3 President, Frances Coulson, comments:
“Businesses are not out of the woods yet, with signs of distress increasing compared to last quarter on most key indicators. This worrying trend largely mirrors the slowdown in GDP growth we saw last quarter. While current stresses might not be enough to push businesses over the edge, prolonged periods of distress will trigger an increase in formal insolvencies – we can see from our research that more businesses are having to use their maximum overdraft. The first few years after a recession are traditionally difficult as it is some time before businesses can sufficiently rebuild their reserves to support expansion.”
The research also found that in spite of the fact that some businesses are growing, other key indicators of health remained low with only 6% having increased export orders and only 11% saying they have increased their workforce.
Frances continued: “The private sector has some way to go before it can deliver the kind of expansion the Government yearns for to drive the economy forwards. While it is encouraging that a fifth of businesses are growing, important measures such as increasing exports and increasing employment register poorly.”
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Notes to editors:
Methodology note: BDRC Continental conducted 502 telephone interviews with
small, medium and large business owners and Financial Directors between 5th and 16th September 2011. Quotas are set by size, region and sector and the data weighted to the profile of UK businesses. The respondent in each case is a senior financial decision maker.
R3 Press Office