Signs of business distress on the increase across the Midlands, says R3
THE number of Midlands businesses reporting signs of distress is up on the previous quarter, according to research by insolvency trade body R3.
Almost one third (31%) of businesses in the region admit to regularly using their maximum overdraft facility, a steep rise from 16% in the last quarter. And more than half (51%) of Midlands businesses say they are experiencing reduced sales volumes, up 16 points on the quarter.
R3 Midlands chairman Matthew Hammond, a partner at PwC in the Midlands, said: “Some of the key reasons behind this considerable increase in business distress are that consumers’ disposable income is shrinking and corporate confidence is at rock bottom. Investors are also reluctant to take the plunge and support businesses perceived to be struggling.
“However, we have still not seen the number of corporate insolvencies we might have expected. This could be attributed to a number of factors, but will almost certainly have been influenced by the current 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 more breathing space to pay taxes and settle debts.”
Nationally, the R3 report reveals that retail businesses are amongst the hardest hit in the UK. Half of retailers reported reduced sales volumes and decreased profits compared to a cross-sector average of 37% and 36% respectively.
And when R3 members were asked to choose which sector they thought would experience the greatest number of insolvencies in 2012, 50% chose wholesale and retail above all other sectors.
Hammond said: “The retail sector is in a state of flux. Retailers rely on customers’ purchasing power but they can be fickle. Furthermore,18m people nationally are worried about their current level of debt, as well as increases in the costs of basics such as food and heating. This is undoubtedly having an impact on their discretionary spending.”
