Nearly one third of businesses are reporting signs of distress

4th May 2012

The number of Midlands businesses reporting signs of distress is up on the previous quarter, according to research by insolvency trade body R3.

Almost one third of businesses in the region admit to regularly using their maximum overdraft facility, a steep rise from 16 per cent in the last quarter. Furthermore, half of businesses say they are experiencing reduced sales volumes, up 16 points on the quarter.

R3 Midlands spokesman Chris Radford, a corporate recovery partner in Gateley's Nottingham office, said: "Consumers' disposable income is shrinking and corporate confidence is at rock bottom. Investors are also reluctant to support businesses perceived to be struggling.

“However, we have still not seen the number of corporate insolvencies we might have expected. This could be attributed to a number of factors, but will almost certainly have been influenced by the current shift in creditor attitudes. With the realisation that economic recovery is still not on the horizon, creditors – including HMRC and the banks – have been giving businesses more breathing space to pay taxes and settle debts.”

Nationally, the R3 report reveals that retail businesses are amongst the hardest hit in the UK. Half of retailers reported reduced sales volumes and decreased profits compared to a cross-sector average of 37% and 36% respectively. Furthermore, when R3 members were asked to choose which sector they thought would experience the greatest number of insolvencies in 2012, 50% chose wholesale and retail above all other sectors

Chris Radford continued: “The retail sector is in a state of flux. Retailers rely on customers’ purchasing power but they can be fickle. Furthermore, 18 million people nationally are worried about their current level of debt, as well as increases in the costs of basics such as food and heating. This is undoubtedly having an impact on their discretionary spending.

“Whilst the economic conditions are extremely testing for retailers, the sector is also facing major changes in its channels to market. As out-of-town and online shopping become increasingly popular, these R3 findings could indicate that some retailers are struggling to keep pace with these retail trends.”