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Begbies: 186,000 firms in financial distress 13 April 2011

The insolvency firm’s latest Red Flag Alert, published today, claims that a total of 186,554 firms are in financial distress, a 15 per cent rise from 161,601 businesses year on year.

The report also reveals how specific sectors are suffering: year on year, the number of businesses showing signs of distress is up by 68 per cent in the bar and restaurant sector; by 60 per cent in the leisure and culture sector and by 23 per cent in the sports and recreation sector.

Other sectors also experienced worsening condition from the last three months of 2010 into the first quarter of 2011.

The Red Flag Alert reveals that 25,031 businesses in the construction sector were facing significant or critical financial problems in the first quarter, a 31 per cent rise on 19,167 construction companies in trouble during the fourth quarter of 2010.

There was an 87 per cent rise in the number of professional services firms in difficulty, to a total of 15,526 in the first quarter, from 8,293 in the last three months of 2010.

There was also a 92 per cent rise in the number of bars and restaurants in financial distress, to 4,505 from 2,347 businesses in the fourth quarter of 2010.

Ric Traynor, executive chairman of Begbies Traynor Group, said: “The figures for the first quarter of 2011 show the number of UK companies facing ‘critical’ problems has risen year on year with significant increases across the leisure sector in particular.”

Traynor emphasised that the sectors which rely almost entirely on consumer discretionay spending were suffering the most.

He added: “Compared with our figures for food retail which show little change, it seems likely that a fall in consumer confidence and spending power driven by anticipated job losses lies at the core of the leisure sector’s troubles.”

Traynor explained that another marked increase was evident in the professional services sector where the number of firms showing signs of distress was up by 61 per cent compared with the first quarter of 2010.

He added: “Over 15,000 firms in the professional services sector are showing signs of significant or critical problems - partly driven by a stale property and corporate deals market - often the drivers for an active professional services community.

“Compared with the first quarter of 2010 figure, of 9,620, it seems that firms which operate with a high fixed cost base are finding the current market conditions increasingly difficult as their revenues fail to recover and the scope for further cost reductions becomes more limited.

“High levels of legal actions taken against debtors indicate that creditors are attempting to maximise cash collection right across their customer base.”



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