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10/01/2013

Small businesses experiencing higher levels of distress than their larger counterparts

Small businesses are experiencing significantly higher levels of distress compared to larger businesses according to R3’s latest Business Distress Index.

37% of small businesses are experiencing decreased profits, compared to 19% of medium-sized businesses and just 7% of large businesses. 24% are regularly using their maximum overdraft limit compared to 6% of medium-sized businesses, while no large businesses report to be doing so. In fact, across all distress signs, higher numbers of small businesses are suffering with the exception of making redundancies. 17% of large businesses have had to make redundancies compared to 12% of small businesses.

Lee Manning, R3 President, comments:

“Small businesses are likely to be struggling because they typically have less access to capital. Investing in a small business is arguably less attractive to investors compared to a venture into a larger business due to the monitoring requirements of a smaller loan being the same as a significant investment in a large business and therefore the resources required are often disproportionate to the anticipated returns.

“Small businesses are often more vulnerable to any change in circumstances, such as a loss of a major customer or increased pressure from their creditors. Small businesses find it difficult to diversify quickly enough to change their business in response to such events and typically do not have access to adequate financial resources to fund restructure. Large businesses are more likely to have the means to restructure, such as relocating or cut head count for example. For this reason, it is not surprising that the one area large businesses are experiencing higher levels of distress is in making redundancies– when trading conditions become difficult larger businesses havethe ability to reduce head count to weather the storm.”

Business distress levels remained elevated throughout 2012 according to R3’s research. A third (33%) of businesses are experiencing decreased profits; one in five (20%) are regularly using their maximum overdraft facility; nearly a third (31%) have seen a reduction in sales volume and one in ten (10%) have been made to make redundancies.

Lee Manning, R3 President, comments:

“During the two years R3’s Business Distress Index has been running, distress signs have often fluctuated quarter on quarter. However, for the last three quarters distress signs have remained at similar levels,which suggests the economy remains stagnant.”

For further information please contact:

Charlotte Towerton, R3 External Communications Officer
t: 020 7566 4203 m: 07918161 291 e: charlotte.towerton@r3.org.uk

Will Black, R3 Communications Manager
t: 020 7566 4215 m: 07917 422 485 e: will.black@r3.org.uk

Methodology note: BDRC Continental conducted 501 telephone interviews with small, medium and large business owners and Financial Directors between 5th - 12th November 2012. Strict quotas are set by size, region and sector and the data weighted to be representative of the ONS profile of UK businesses, each with an annual turnover above £50,000. The respondent in each case is a senior financial decision maker. (Previous survey, 6th-13th June 2012)

Notes to editors:
– R3 is the trade body for Insolvency Professionals, and is made up of 97% of the UK’s Insolvency Practitioners.
– 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. Website www.r3.org.uk
 


R3 Press Office

Notes to editors:

  • R3 is the trade body for Insolvency Professionals and represents the UK’s Insolvency Practitioners.

  • R3 comments on a wide variety of personal and corporate insolvency issues. 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 recognised professional bodies
     
  • R3 stands for 'Rescue, Recovery, and Renewal' and is also known as the Association of Business Recovery Professionals.