Small and medium-sized enterprises (SMEs) in the UK face serious financial difficulties over the next quarter, according to a recent report.
Restructuring specialist Begbies Traynor found that businesses in critical condition fell 39% to 3,001 between April and June compared with the same period a year earlier. The Begbies red flag report, which monitors early signs of financial distress among companies, said that businesses in critical distress also fell 9% in the second quarter compared with the first.
This at first seemed to be the first real sign that the UK economy is headed toward recovery. However, the report ironically concluded that many small and medium-sized enterprises 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,” said Julie Palmer, a partner at Begbies.
Begbies Traynor said distress levels fell most sharply in the construction, professional services and financial services sectors, while manufacturing also improved on the back of increased demand both at home at abroad. It added that businesses depending on discretionary consumer spending were among those to see some of the biggest rises in critical financial distress levels, including hotels, bars and restaurants.
This report coincides with a warning given by Vince Cable, Business Secretary, at the London Stock Exchange on Monday that Britain’s economy is littered with “zombie companies” which are surviving only because of low interest rates and will go bust when economic conditions change. He also proposed making the directors who ran failed companies personally liable for the firm’s debts as part of an overhaul of company rules.
If you have suffered from financial challenges recently and cash flow remains a huge challenge, it will be beneficial to review your resources, both in terms of cash flow and wider business plans, to ensure that you have the best toolkit to deal with financial difficulties that your business faces. You should seek financial advice, as there are many solutions that can still help you get control of the situation.
