Fifth of UK businesses under pressure financially
Around one-fifth of businesses in the UK are under financial pressure, according to a new report. While the findings suggest that the number of firms sweating on their future has not increased dramatically, the figure may well spiral upward over 2020, as the Brexit process finally reaches its conclusion.
Over the last four years, flagging consumer confidence has been dented by stagnating pay, while the price of many products and services has been hit by inflation, thanks to rising import prices relating to the ailing pound. In 2019, this saw specialist restructuring consultancy Begbies Traynor release figures suggesting the number of UK businesses in significant financial distress in the first quarter of 2019 had increased, while those under critical distress had ramped up by 17% on 2018’s levels. In total, one-fifth of businesses found themselves weighing up insolvency measures.
Now, a new release from KPMG suggests that the situation is unlikely to have changed since. The Big Four firm analysed the filings of all UK businesses with revenues over £10 million in the five year period to the end of 2018, taking into account trading performance, profitability, cash-flow, liquidity and debt leverage to identify financial stress and distress among businesses. Ultimately the researchers found that over the period, the proportion of businesses in financial stress increased from 19% to 21%.
In “absolute terms”, financially stressed UK businesses increased from some 4,300 in 2014 to 5,700 in 2018, a compound annual growth rate of 7.7%. Businesses in more acute financial distress rose from 800 in 2014 to nearly 1,100 in 2018, a compound annual growth of 8.9%.
Blair Nimmo, Head of Restructuring at KPMG UK, said, “When we talk about ‘stress’, we typically mean companies which may have experienced instances of negative cash-flow or working capital, defaulting on debt repayments or with a high debt-to-equity ratio. Taken individually, all can be relatively manageable. However, an accumulation of such factors can indicate a company is veering towards distress – and possibly insolvency. The fact is that without action, stress can very quickly turn into distress.”
Sectors with the largest proportion of companies in financial stress and distress were retail, leisure and hospitality, building and construction, industrial manufacturing and consumer production – suggesting worse might still be to come in what is a make-or-break year for the UK economy. While increasingly high employment has helped to mitigate some of the country’s economic stagnation in recent years, hiring intentions have cooled over the last 12 months as the country braces for the impact of Brexit – suggesting that the number of insolvencies may well spiral further upward over the coming 12 months.