Nearly a third of businesses regularly using their maximum overdraft facility
The number of businesses reporting signs of distress is up on the previous quarter, according to research by R3, the insolvency trade body. 30% of businesses admit to regularly using their maximum overdraft facility, a steep rise from 17% last quarter and the highest figure recorded in the last 12 months. 37% of businesses say they are experiencing reduced sales volumes, up nine points on the quarter.
Lee Manning, R3 President, comments:
“Distress is up on the quarter but we have not seen the number of corporate insolvencies we would expect. This could be down to a number of factors but will certainly have been influenced by a shift in creditor attitudes. With the realisation that economic recovery is still not on the horizon, creditors – including HMRC and the banks – have been giving businesses ‘Time to Pay’ on their taxes and more breathing space to settle their debts.”
“But why then are more businesses reporting distress? Well, regardless of the sympathetic attitudes of creditors, consumers’ disposable income has shrunk, confidence is at rock bottom and the impact of this is bound to be felt. Suppliers and investors are also reluctant to take the plunge and support businesses perceived to be struggling so we are seeing more and more suffering but this is not manifesting itself in business failures.”
The retail sector:
Across three out of the five distress signs, more retailers are suffering. Most notably, half of retailers reported reduced sales volumes and decreased profits compared to a cross sector average 37% and 36% respectively. Furthermore, when R3 members were asked to choose which sector they think will experience the greatest number of insolvencies in 2012, 50% chose wholesale and retail above other sectors.
Lee Manning continues:
“The retail sector is in a state of flux. Retailers live or die on the back of the consumers’ spending power and the likes of Game, Peacocks and La Senza show us that the consumer can be fickle. Furthermore, 18 million people are worried about their current level of debt and this is undoubtedly having an impact on their discretionary spending, together with increases in the costs of basics such as food and heating.
“In the last 15 months there has been an increase in the number of high profile retail failures. Since January 2011, the top 15 retailer failures have seen their property portfolio shrink from 2,725 to 1,350 and seen job losses of circa 20,000 combined.
“Rates and utilities are a significant cost for retailers and so they need to critically appraise the contribution of individual stores to central overheads and profits.
“They should also perhaps look to renegotiate contracts with suppliers and landlords to ensure they are getting the best deal. Retailers are struggling with leases that were set up during the good times and set up many years ago. It is time for landlords to be more flexible before businesses start struggling.
“The high street is changing, as are consumer spending habits and as out-of-town and online shopping becomes increasingly popular, these findings indicate that many retailers are not keeping up with the pace.”
Methodology note: BDRC Continental conducted 559 telephone interviews with small, medium and large business owners and Financial Directors between 5th-16th March 2012. 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.
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Notes to editors:
- R3 is the trade body for Insolvency Professionals, and is made up of 97% of the UK’s Insolvency Practitioners from all over the UK.
- R3 comments on a wide variety of personal and corporate insolvency issues. Please contact the press office, or see www.r3.org.uk for further information.
- R3 promotes best practice for professionals working with financially troubled individuals and businesses; all R3 members are regulated by one of nine recognised professional bodies.
- R3 stands for ‘Rescue, Recovery, and Renewal’ and is also known as the Association of Business Recovery Professionals.
R3 Press Office