Is your business facing financial distress?

posted by 4 years ago in News

With a drop-in growth opportunities and a decline in business confidence the levels of financial distress is hovering over the heads of SMEs within the UK.

The percentage of businesses who have reported growth has dropped to 53% – the lowest since July 2013 (53%) and down by 9% compared to April (64%) according to research conducted by R3.

Research also found that the amount of companies feeling the financial distress has increased to 25% compared to 30% in April and September’s 21% during 2016. The dominant focus of the distress comes from ‘decreased sales volumes’ of which 12% revealed that is where the stress lies. To add, with the Bank of England announcing a climb in interest rates an increase of 0.25% giving an overall rate of 0.5% there are fears that sales volumes could drop further as customers tighten their purse strings.

To add, 11% of business owners have expressed that they are using their overdrafts to the maximum on a regular basis – nearly triple of the amount from September 2016 when it was just 4%.

President of R3, Adrian Hyde comments;

“There’s been a very frim increase in financial distress levels over the last 18 months, alongside a drop-in growth. Businesses have moved on from record high growth levels and record low distress levels and it looks like a new phase of the economic cycle has started.

“With sales volumes falling for a larger number of companies, and with more firms reaching the limit of their financial facilities, the economic is getting murkier. For a lot of companies existing on the edge, just one shock – such as a rise in the cost of borrowing, the failure of major supplier or customer, or a fall in consumer confidence – could be enough to push them into insolvency.”

Hyde went onto explain that businesses have seen a climb in costs over the last 12 months due to several reasons including; an increase in business rates, improved National Minimum Wage, fuel prices increasing, the drop-in sterling and inflation. Although the drops may seem negative, a mere 6% of businesses have found a drop in their profits.