Signs of business distress fall in the East of England
Signs of distress amongst East of England businesses fell in the last quarter of 2011 compared to the previous quarter, according to the latest Business Distress Index published by national insolvency body, R3. Around two in five companies in East Anglia and the East Midlands (42%) reported suffering from key distress indicators, such as falling sales, decreased profits and cash flow difficulties, compared to more than three in five (64%) in the previous quarter.
The R3 report also highlights that only 3% of Eastern region businesses have had to make redundancies, compared to the national average of 8%, whilst only 4% are finding it difficult to pay invoices on time, compared to 14% nationally.
Furthermore, only 1% of businesses has been forced to use its maximum overdraft facility frequently, whilst the national average is far higher at 17%. However, the figure for those East of England businesses experiencing decreased profits (35%) is in line with the national average, which stands at 34%.
R3’s Eastern region chairman Shay Lettice, a partner Cambridge accountancy firm Peters Elworthy & Moore (PEM), said: “Whilst consumer confidence remains low and businesses are still showing significant signs of distress, there does appear to be a distinct upturn in the regional situation.
“However, we have to take a pragmatic view and consider whether this could be the calm before the storm. Many ‘zombie’ businesses in East Anglia have been surviving, but not thriving, and we know that the vast proportion of businesses do not fail in the middle of a recession but when the economy is recovering. This ‘insolvency lag’, which has been evident in previous recessions, is certainly a distinct possibility.”
The R3 research also highlights the struggle for survival that SMEs are still facing compared to larger corporates. Nationally, over a quarter (29%) of SMEs have seen a reduction in sales volumes compared to 6% of big businesses. More than a third (34%) of SMEs are experiencing decreased profits compared to 19% of big businesses.
Shay Lettice continued: “The Government has created a number of schemes to support SMEs in recognition of the key role they play in maintaining the health of the economy. However, these businesses need more help to survive this difficult economic environment. It is clear that many SMEs are not financially robust enough to withstand the economic pressure.
“Ultimately, more business support is needed in 2012 to facilitate a successful economic recovery.”
ENDS
