Over 850,000 businesses are suffering from decreased profits and other forms of financial distress, according to new research by insolvency trade body R3. Nearly 50 per cent of UK businesses were experiencing falling profits, which R3’s research identified as the most common form of distress currently felt by UK businesses.
Meanwhile 750, 000 businesses had seen a reduction in their sales volumes and 32 per cent had experienced a recent fall in market share, according to the trade body’s new “Business Distress Index”.
The new findings prompted R3 president Steven Law to issue a warning that corporate insolvencies could rise over the longer term and in light of the patterns followed in previous recessions.
He said: “It is worrying that the most common signs recorded in September this year are decreased profits and a reduction in sales volume, given we are now out of recession.
“Although corporate insolvency numbers have decreased over 2010, experience of past recessions tells us to expect them to continue rising as the recession finishes in an ‘insolvency lag’. The UK’s insolvency practitioners are expecting corporate insolvency numbers to increase for 2011 to 27,500. In 2009 the figure was 26,400.”
Meanwhile separate research conducted by R3 revealed that one in five businesses (19 per cent)) are worried about the amount of debt they currently owe to their creditors.
The research revealed that smaller businesses owe on average around £110,000 to the bank, £82,000 to trade creditors and £27,000 to the Crown.
Yet a third of businesses said they were most worried about the amount they currently owe in trade debts; while just 24 per cent were primarily concerned about finance, overdraft and banks loans; and 18 per cent were worried about Crown debts, such as VAT.
Law added: “In a fragile recovery, debt is an important part of working capital in most businesses. With VAT rises to come and the impact of public sector cutbacks yet to be felt in full, many businesses are concerned about their ability to repay the money they owe in fragile conditions.
“Worries about trade debts are often more keenly felt as businesses deal with this creditor group on a day to day basis. These debts