Several headlines posted on a recent Credit-Connect News Alerts caught our attention:   650,000 Businesses Facing Significant Financial Distress

 

The latest Red Flag Alert research for Q2 2021 has recorded 650,000 businesses in ‘significant financial distress’ – the second-highest distress level ever recorded by this research. However, this number has fallen 10% since the highest recorded number of significantly distressed businesses in Q1 2021 (723,000) by the Red Flag Alert, as the economy has reopened and allowed some companies to pay down some of their more critical debt in order to avoid court action.

This newly published research from Begbies Traynor also found that despite the Q2 improvement in the financial performance of businesses, the numbers of significantly distressed companies is still 24% higher than the same time last year (526,967 – Q2 2020, 651,492– Q2 2021) with 12-month increases in the real estate and property services sector (35% from 58,844 – Q2 2020, 79,695– Q2 2021), the financial services sector (27% from 13,307– Q2 2020, 16,903 – Q2 2021), the travel and tourism sector (26% from 3,897– Q2 2020,4,908– Q2 2021) and the construction sector (26% from 67,917– Q2 2020, 85,376– Q2 2021)

As reported in the first quarter of the year, court action remains depressed due to a moratorium on proceedings during the pandemic. However, the latest official figures show that court activity is picking up as creditors, especially landlords, become more aggressive in chasing debts.

Official data shows there were 7,617 CCJs lodged against companies during April, May and June in 2020, with this number increasing to 14,460 during the same period in 2021, a 90% uplift.

Despite this increase, the number of more serious winding up petitions has remained depressed in 2021 with just two recorded in Q2 2021 as the moratorium took effect. This number is significantly down compared to April, May and June 2020; 172 winding-up petitions were lodged which is still significantly lower than pre-pandemic levels of 714 in Q1 2020.

The leisure and cultural activities sector has bounced back as lockdown eased in Q2, with a 10% decrease in the number of businesses in significant financial distress (18,710-Q1 2021, 16,824- Q2 2021). Year on year, however, there has been an increase of 21%, demonstrating the continued impact of the pandemic upon this sector.

Despite the booming residential property market, the whole real estate and property sector – a key indicator of the economy’s performance – has continued to struggle with only a 6% quarterly decrease in the number of businesses in significant financial distress (85,165- Q1 2021, 79,695- Q2 2021).

All UK regions recorded a quarterly decline in the number of businesses in significant financial distress, yet annually, each region has recorded at least a 16% increase. As a possible consequence of uncertainty surrounding Brexit negotiations, Northern Ireland has recorded one of the greatest annual increases, of 28% (7,731- Q2 2020, 9,860- Q2 2021).

London’s reliance on the leisure & hospitality and financial services sectors has made it the most vulnerable region during the past year, as a result of the short-term effects of Covid. Businesses in London experienced a 28% year on year increase in significant financial distress, and the lowest quarter-on-quarter decrease of all regions, at 9% (135,760- Q2 2020,190,829– Q1 2021,174,107– Q2 2021).

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Third of Businesses Concerned about Surviving the next 12 Months

New research by outsourced finance solution specialist, Addition, has found that nearly a third of UK businesses are concerned about surviving the next 12 months.

The national survey highlighted the main concerns for small business owners over the next 12 months., showed that surviving without government support is the biggest concern for businesses in the UK with nearly a third (29%) worried about the potential impact on their future.  The data also revealed that a quarter (25%) of business owners flagged managing costs as a major concern over the next year, while 24% of those surveyed also believed that attracting and recruiting the right talent was going to be a massive challenge. As the UK reopens and Covid restrictions ease, businesses across the UK will have to once again adapt to the ‘new normal’ and try to survive as demand, costs and recruitment needs fluctuate in the immediate future.

Addition’s goal is to give small businesses the financial savvy of big ones. They offer the full suite of financial services – from bookkeeping to growth funding. Their flexible plans offer scale-up options for the fraction of in-house finance team costs. The forward-thinking firm is currently a financial ally to 150 startups (from pre-revenue to £10m turnover), supports growth and offers expert guidance at each step of their business journey.

Addition founder and CEO, Graham Davies said “At Addition, we believe it is critical to understand all the concerns business owners have in the short-term, so we can support them through the next 12 months and beyond. As government help ends and demand begins to fluctuate alongside the economy, there are many positives for businesses to look forward to – but these changes also bring challenges.”

“Understanding your financials is vital to overcome these challenges and drive business growth. At Addition, we don’t just want to take the numbers off your hands. We want to empower you with targeted insights and 1-1 support – until you’re so big, you don’t need us anymore.”

To read the full story, click on this link: Credit-Connect