‘Significant’ Financial Difficulties Faced by Almost 500,000 UK Companies

Half a million UK companies across the country are in a state of ‘significant’ financial distress, a new Red Flag Alert study reveals. Another challenging year is likely to be ahead for 2018.

493,296 businesses reported suffering from significant financial distress in the last quarter of 2017; this figure has risen by 36% since the prior year, and 10% since the previous quarter.

Several factors are likely to have contributed to this. A combination of a weakening Pound, rising inflation and interest rates, a lack of trust in the credit environment and stagnant real wage growth will have just been the start of the issues that UK companies face.

Of course, the weakening Pound has been positive for those businesses with strong export books, for example, within the manufacturing sector. Not all companies have been so lucky, unfortunately.

Small businesses are likely to have felt the greatest effects of these factors, as Forbes Burton have seen; one minor downturn can easily spiral into an insolvent company.

To break down the study’s results even more;

• 258,349 UK businesses reported a year end position of negative net worth
• 154,251 showed an increase in their working capital deficit
• Every sector and region of the UK has seen a rise in companies in ‘significant’ financial stress over the past 12 months
• 121,528 companies in London suffered, making this the most affected region
• 121,095 Support Services reported financial difficulty, indicating that this industry has been affected the worst
• Real Estate and UK Construction sectors were also among the worst effected sectors

These three industries alone make up 45% of those UK businesses that are suffering from ‘significant’ financial distress.

Rick Smith, MD of Forbes Burton, commented:

“Macro-economic pressures last year have had a huge effect on the economy, and it’s clearly a concern for half a million companies across the UK.

“This new data shows that no industry has been unaffected by the raising interest rates, budgeted consumer spending and the business uncertainty that comes along with it. Finance companies are also dealing with higher risk and are less likely to approve unsecured applications.

“Unfortunately, there are no real winners under this environment, but some sectors are of course suffering more than others.

“We see here that UK support services have been put under huge strain from a lack of consumer spending, the construction industry and real estate sector also feeling the full impact of the lack of investment in new builds and overall housing market.”

Ben Westoby, Senior Client Manager at Forbes Burton, said:

“The weakening of the Pound altered exchange rates last year, and although the Sterling has recently recovered, many companies have been hit hard.

“The improvement is yet to have any effect on corporate health, and alongside political and economic uncertainty throughout the Brexit negotiations this is unlikely to recover any time soon.

“Corporate growth in the UK is expected to be continually slow throughout 2018, so business efficiency and staff engagement should be prioritised. The government are pushing for productivity this year, and small businesses owners should be following their lead.

“There are thousands of businesses that are showing significant financial distress, and the managers of these companies should be concentrating on cash reserves and cost management, long-term efficiency goals along with finding ways to stay one step ahead of the competition.

“The next year is likely to see many small businesses go under – don’t let yours be one of them.”