East Mids start-ups on the rise

Chris Radford

East Midlands start-up numbers are on the rise, according to latest statistics from insolvency and restructuring trade body R3.

The organisations says there has been a net quarterly increase of around 2,000 East Midlands firms since the beginning of May, with the total number rising from just under 207,000 to just over 209,000 at the start of September.

R3 warns, however, that all businesses should be aware of a growing threat as the proportion of East Midlands businesses at heightened risk of insolvency has increased over the same time period from 41% to 43.7%, equating to a rise of more than 6,500 local firms.

R3 Midlands chair Chris Radford said: “It is encouraging to see such entrepreneurial drive in the region, particularly as the economic climate remains so challenging. However, with the increase in companies at greater risk of insolvency, there is stronger emphasis on owners and managers to remain aware of potential issues and act swiftly on them.”

This is backed up by further R3 research which indicates that nearly one quarter (22%) of East Midlands companies has suffered a financial hit following the insolvency of a customer, supplier or debtor in the last six months. The report found the financial impact of the insolvency of another business was described as “very negative” by 5% of the region’s companies, and as “somewhat negative” by 17% of local respondents.

Radford, who is also a partner at Gateley in Nottingham, said: “The figures are evidence of the so-called ‘domino effect’, where one company’s insolvency will increase the insolvency risk for others. They follow a national 13% rise in underlying insolvencies in the first three months of this year compared to the previous quarter, and a spate of high profile insolvencies involving large companies such as Carillion and Toys R Us.

“No business exists in isolation, and every headline-grabbing corporate insolvency will have consequences for numerous other enterprises. After the news of the Carillion liquidation broke, for example, our local members reported an immediate upsurge in requests for advice from companies with links to Carillion. In the retail sector, we witnessed the recent string of High Street administrations causing less visible struggles at other firms, such as suppliers and service providers.”

Radford added that the problems caused by the domino effect are generally ones that businesses are able to overcome with foresight and planning, albeit with a possible hit to future turnover and profitability.

He said: “Any smart business knows it needs to mitigate risks due to insolvency in its supply chain or its customers through active monitoring of partners’ credit profiles, diversification where possible to spread risk, and through building strong relationships which can provide support when a major counterparty hits a rough patch.”

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