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16/02/2011

UK businesses see signs of distress increase across the board

UK businesses see signs of distress increase across the board, with over half experiencing decreased profits.

 R3’s second quarterly ‘Business Distress Index’, a barometer of financial distress, reveals increased signs of distress in December last year, with ‘decreased profits’ being the leading sign. R3, the insolvency trade body, surveyed over 500 business owners, 54% of whom recorded decreased profits, an increase of 5% from September.

 The index also reveals a 4% jump in the number of businesses making redundancies and a 3% increase in those introducing pay cuts or freezes. The findings also show an increase in the number of businesses finding it difficult to pay invoices on time, which now stands at 268,000, the equivalent of one in six.

R3’s President Steven Law commented:

“The overall picture indicates that conditions have got more challenging from September to December last year – though we must remember that during this period businesses were affected by the adverse weather conditions. However, the increase in businesses struggling to pay bills on time is worrying as this is the technical definition of insolvency.

“This coupled with an increase in the number of businesses using the maximum overdraft facility, which stands at 1 in 5, suggests that many businesses are running on empty.”

Conversely, the survey finds that while more businesses are recording decreased profits there has been a 7% drop in those seeing a reduction in sales volumes - 37%.

Steven Law continued:

“These figures suggest that businesses that are selling large volumes are doing so at a discounted price or have seen an increase in overheads and other outgoings. For many, an increase in interest rates could push them over the edge. Seeking professional advice early could help these businesses to avoid insolvency.”

Business Distress Index (wave 2)


Methodology Note
BDRC Continental conducted 501 telephone interviews with small, medium and large business owners and FDs between 29 November and 10 December 2010. Quotas are set by size, region and sector and the data weighted to the profile of GB businesses. The respondent in each case is a senior financial decision maker. Where figures are mentioned, estimates have been extrapolated using the percentages from the results and the number of businesses for Great Britain. Small businesses are those with a turnover of £50,000 to £1million pa; medium and large businesses are those with a turnover of more than £1million pa.


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.