But recovery may have a sting in the tale – Begbies Traynor Red Flag Alert
THE latest Red Flag Alert research for Q2 2013 from corporate recovery specialist Begbies Traynor shows levels of critical financial distress among UK business has fallen dramatically.
It is down 39% compared to Q2 2012, the second highest year on year decrease since the beginning of 2011.
Across all sectors, UK businesses experiencing critical financial problems reduced from 4,947 in Q2 2012 to 3,001 in Q2 2013, indicating a significant turnaround in the health of the UK economy. On a quarterly basis, the improvement continued with levels of critical distress falling 9% from 3,283 in Q1 2013.
The number of UK businesses experiencing significant levels of financial distress remains high but is improving, albeit at a slower rate, reducing 18% year on year from 216,396 cases in Q2 2012 to 176,677 in Q2 2013, and on a quarterly basis falling 7% from 190,787 in Q1 2013.
But Julie Palmer, a partner at Begbies Traynor, said there are still real fears about the business health of small and medium-sized companies.
She said: “With critical distress levels falling at a record pace, this quarter’s improvement appears to be the first real sign that the UK economy has turned a corner towards a sustained recovery.
“However we have real fears that many SMEs will have serious financial difficulties at the time they least expect – during a recovery. Our experience has shown time and time again that many SMEs run out of cash during the recovery phase, as there is a real temptation to overtrade.
“Many of these companies at risk have been labelled as “zombies” in the past but, with the majority having survived the worst of the recession, they are now chronically under-funded, benefitting from low interest rates and improving confidence but in desperate need of finance and, crucially, guidance to help them take advantage of the dawning economic recovery in an unfamiliar post-crisis market.”
Ric Traynor, executive chairman of Begbies Traynor Group, added: “This quarter the Red Flag statistics indicate that the UK economy has seen one of the largest improvements in corporate health in the last two years, aided by improving conditions and growing confidence across the UK’s core markets.
“However a new breed of chronically under-funded businesses may hold back the economy’s growth unless proper guidance is provided to this group of financial crisis survivors, many of whom require innovative support to restructure in order to avoid insolvency in the future and ensure they prosper as the UK economic recovery gains pace.
“Key to their survival will be improving the funding gap for SMEs and providing greater training for business leaders so they are better able to forecast their businesses’ future, especially in the SME community, while ensuring that tax and regulatory obstacles do not block their path to recovery.”
