The number of British companies facing severe difficulties in the first quarter of 2011 rose by 15 per cent over the same period last year, according to the latest Red Flag report issued by corporate recovery specialists Begbies Traynor.
The sharp increase in businesses facing significant or critical financial difficulties in the first quarter of 2011 - to 26 per cent - amounted to a total of 186,554 businesses. The figures could well lead to a significant rise in the number of businesses being put up for sale, as owners seek external investment to keep their companies viable. Surprisingly, many are established firms with loyal customer bases - attractive prospects for businesses seeking to grow through making acquisitions.
Begbies Traynor issues the quarterly report based on figures from its database of more than 6 million business records from across the UK, which gives a clear gauge on the early-stage warning signs of companies in distress.
Executive chairman, Ric Traynor, said that the uncertain immediate future of the British economy was creating difficult trading conditions for particular sectors. He pointed to the leisure industry as an example of a sector that will be subject to the effect of falling consumer confidence and purse string tightening in anticipation of further public sector job losses and increasing competition for private sector roles.
In a statement issued with the report, the company said, "January 2011 marked the beginning of widespread 90-day consultations on job cuts resulting from October's Comprehensive Spending Review. A significant number of public sector staff will have received a formal notification of impending redundancies which will have had an impact on discretionary consumer spending."
The focus on cashflow control has not only affected consumers - businesses are struggling to assimilate rising overheads into their finances. Mr Traynor explained that the persistent increases in oil prices together with the January VAT increase have brought credit control and cash flow concerns to the forefront for both debtors and creditors, with increasing numbers of the latter turning to the courts to follow up their payments, putting pressure on businesses in their debt.
The report pointed out the trend for consistent rises in distressed businesses during the first quarter of the year. It has come as a matter of concern to many, however, just how great the rise from the 14 per cent registered in 2010 to the 26 per cent recorded this year has been.
Professional service companies have been riding a rising tide of distress, according to Begbies, with a 61 per cent increase in the numbers facing problems, compared to last year, amounting to some 15,000 firms. This could largely be attributed to a still-stagnating environment for property and corporate deals, which are seen as the bread-and-butter of a thriving professional services sector.
Restaurants and bars - traditionally smaller companies that are attractive for takeovers and buyouts - registered a staggering 68 per cent rise in the number facing distress to 4,500.
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