The number of businesses falling into insolvency dropped by 19% in the third quarter, with 633 companies being placed into administration in England and Wales – a 35% drop on the same period last year and the sixth consecutive quarter that company insolvencies have fallen. Great news I hear everyone say. But does this mean the future looks bright or is this the calm before the storm.
It is definitely encouraging that the number of business failures is dropping across all sectors. However, it would be wrong to look at the latest insolvency statistics and say they reflect an improvement in the economy. According to industry experts the small- to medium-sized company sector is full of “walking dead” companies that will inevitably fail but which are being kept alive for the time being as creditors have thus far been sympathetic to the situations. But a change in mentality is occurring and creditors are starting to become more forceful in wanting their money back. This is particularly evident with the number of reactive enquiries received in the industry whereby the HM Revenue or another creditor has decided to take legal action to recover funds outstanding.
If you add the low interest rates, supportive banks and Time to Pay tax deferral agreements have helped keep down business failure rates. However, these factors cannot remain with us forever and we could be benefitting from calm before the storm.
To add to the strenuous conditions, there is no room for complacency as public sector cuts estimated to be in the region of £46Billion is more likely to hit private sector businesses. It is estimated that over half a million private sector jobs will be lost due to the spending cuts. Unfortunately it is a case of when the cuts start to take effect; the businesses with poor cash flow will be hit.
Ok so the economy is all rosey and bright as the figures suggest, but what are the solutions then I hear you say? In order for businesses to continue the business must be able to identify the problems and warning signs early and be able to overcome these sooner rather than later.
