Better news for businesses from R3 survey

FEWER Midlands businesses are experiencing signs of distress compared to earlier this year, according to research published by insolvency trade body R3.

But it found a significant number are continuing to feel the pressure from a bumpy economic ride.

R3’s Business Distress Index, which monitors the responses of regional respondents on a number of growth indicators, highlights that only 13% of Midlands businesses admit to regularly using their maximum overdraft facility, a steep fall from 31% in the last quarter. 

There has also been a reduction of 18 points, from 51% to 33%, in the number of Midlands businesses experiencing reduced sales volumes.

Conversely, the R3 research shows that more than one in ten (12%) Midlands businesses are at risk of becoming insolvent, saying they are only able to pay the interest on their debts, but not reduce the debt itself.

R3 Midlands chairman Matthew Hammond, a partner at PwC in the Midlands, said: “Whilst some local businesses appear to be weathering recent economic challenges, there is still a vast number ‘running on empty’.  

“The danger for these businesses is that any change of circumstances, such as a rise in interest rates, the loss of a major customer or suppliers upping their prices, will mean that they will not be able to survive.”

According to R3 national research, the construction sector has the largest proportion of businesses (16%) only able to pay the interest on their debts. This equates to 37,000 businesses nationwide.

Hammond added: “With many capital expenditure projects coming to an end, cuts in public sector budgets and work from the Olympics coming to a close, we can expect to see some of these businesses fail.”