527,000 business in ‘significant’ financial distress after pandemic
More than half a million businesses are now in significant financial distress, according to Begbies Traynor’s latest Red Flag Alert.
The new total of 527,000 follows a 33,000 increase during Q2 2020 – and is the seventh consecutive quarter of increased financial impairment.
It is thought that this rise would have been significantly higher this year if not for reduced court activity during the lockdown earlier this year, which has substantially reduced the number of CCJs being taken against indebted companies.
Julie Palmer, Partner at Begbies Traynor, said: “The latest figures from our Red Flag Alert research show that there is a dam of company financial distress waiting to break upon the UK economy.
“Despite more than 30,000 businesses having fallen into distress since the start of the year, the real level of corporate underperformance is being concealed by inaction on distressed businesses in the courts.”
As the government support initiatives wind down and courts reopen fully, the true extent of the damage caused by the pandemic is yet to be seen.
Ric Traynor, Executive Chairman of Begbies Traynor Group, said: “There has been unprecedented company support measures from the Treasury during the pandemic, with both the furlough scheme and access to government-backed funding schemes. But unfortunately, as the chancellor himself has admitted, not all businesses and jobs can be saved.
“Many of these support measures will have simply delayed the inevitable, with the can being firmly kicked down the road. Many businesses will have to deal with a toxic mix of reduced sales and increased levels of debt, plus the complications of dealing with staffing levels that cannot be supported by the level of business going forward.”
The impacts are already being felt across the board, with all 22 sectors surveyed showing an increase in significant distress.
For businesses in real estate & construction, 17,000 fell into distress in the last quarter. Six per cent more commercial builders and 4% more house builders found themselves in significant financial distress in this period.
Another sector that has been badly affected is retail, and although it may seem that online retail sales have seen a positive change, there has still been an increase of 7% of businesses in significant financial distress, with similar statistics being seen for fashion retailers (7%) and high street retailers (6%).
Bars and restaurants have also suffered, with a 6% increase since the start of the year and a 4% increase in the last quarter.
For many businesses, the worst may be yet to come with the UK now officially in a recession and the end of many government support schemes imminent.
If you find yourself struggling to maintain your cash flow and have outstanding invoices impacting the health of your business, our debt collection services can help to speed up collections and remove the burden from your business. To find out more about how we can assist and get a quote, call us on 0800 9774848 or request a call back at a time that suits you.