5,179 firms in critical condition

A total of 5,179 companies in the UK were facing critical problems in the second quarter of this year, representing liabilities of nearly £60bn, according to the latest Red Flag report.

The report, issued on 29^th July, shows a 12 per cent rise in the number of companies in a critical financial condition compared to the first three months of 2011.

Travel and tourism, hotels and accommodation and retail sectors continue to suffer with further decline. The number of companies suffering critical financial problems in the hotels and accommodation sector increased 47 per cent and for the travel and tourism industry, this figure spiked by 31 per cent. The retail sector also saw a 17 per cent increase.

But while these industries remain highly vulnerable, the report shows a 48 per cent fall, quarter on quarter, in the number of businesses facing ‘significant’ financial problems. This fall is an apparent glimmer of good news, but could be indicative of weaker businesses actively moving from significant to critical financial problems - and ultimately to insolvency, as well as seasonal factors which typically impact on the first quarter figures.

HM Revenue and Customs is taking a more robust stance. As the level of support from the revenue is gradually decreased, it is increasingly evident that businesses using the scheme are now struggling to cope with current trading conditions.  Many companies which made use of the time to pay scheme have failed to achieve a turnaround and are now seeking a second deferral agreement with HMRC. 

However, the government is finding it difficult to give second chances and the number of winding up petitions issued by HMRC in the second quarter of 2011 has more than doubled since the first quarter.

Property also showed no signs of improvement, according to the report. The level of companies in this sector showing signs of critical distress views was up by 42 per cent in the second quarter compared to the first.

There was also a 41 per cent rise in the haulage and logistics sector during the same period.

JULY 2011 NEWSLETTER

Welcome to our Summer Newsletter.

The first half of 2011 has been a challenging one for many involved in the SME community. Small businesses are struggling to generate good cashflow and finding it very hard to access new capital from their banks. We see many business owners who are behind with payments to HMRC, most recently corporation tax bills, and finding a less than sympathetic ear from the tax collectors.

Paradoxically, we have an ever increasing network of private investors who are seeking the right opportunities to invest capital. The vast majority of these individuals are self-made entrepreneurs who have exited their core business and have an appetite for backing established trading businesses who have a need for capital.

We’re finding ourselves able to generate significant investor interest for almost all of our clients; holding meetings between clients and investors often within days of being taken on. Over two thirds of our clients receive offers of funding, which is a testament to the quality of our investor network.

The tricky bit, of course, is managing expectations on both sides. Agreeing terms, valuations, keeping DD to an appropriate level, not allowing time to drift and maintaining deal momentum are all obstacles that need careful management.

We’re always keen to talk with business owners who have a need for capital and are comfortable with an equity funding solution. Please don’t hesitate to contact myself or a colleague at any time.

INDUSTRY AWARDS

It’s that time of year again, the cutoff date has now passed and entries have been submitted for this year’s Insolvency & Rescue Awards. 

Now into its fourth year, The Insolvency and Rescue Awards is the biggest event in the insolvency and turnaround industry, where professional excellence and outstanding achievements are recognised.

We are back this year to defend our title as ‘Business Rescue Funder of the Year’. We have also entered a second category to highlight our achievements since the last awards ceremony with our entry for ‘Business Rescue of the Year’.

Finalists are due to be announced in the coming weeks and the awards will be held on 5th October at the Lancaster London Hotel.

Let’s keep our fingers crossed!

BIRTHDAY CELEBRATION

Now into his seventh year with Beer & Young, Senior Associate Michael Morley-Smith celebrated his 65th Birthday this month. Trained as an accountant, Michael has intimate knowledge of small business practice as well as company insolvency rules, and has become one of our in-house technical experts for company turnaround.

Michael is a huge fan of Formula 1 and cricket – we’re looking forward to a day out at the Rose Bowl to see England/India in September.

Congratulations on reaching this milestone. We expect several more years’ effort before we hand over the brass clock!

20 retail stores are closing every day

Britain’s beleaguered retailers closed an average of 20 stores a day between January and the end of May, according to a report from a research business specialising in retail.

The report also revealed that across multiple retailers in 300 town centres, clothes, shoe shops and jewellers have been amongst the hardest hit in 201 whilst supermarkets, convenience stores and cafes bucked the trend by showing growth in the first half of 2011.

It would appear that the combination of rising inflation and dented consumer confidence has led to people increasingly trying to find the best deal online. This has made life difficult for store-dependent high street retailers who have seen a drop in sales and reduced footfall.

Matthew Hopkinson, director of the research company, said that retailers now require fewer stores in fewer locations but with larger floorplates.

He added: “The negative trend seen here is, however, offset by the supermarkets and their move into convenience formats, along with the new opportunities presented to charity shops, pawnbrokers and betting shops.”

The companies analysis shows that Rochdale and Lancaster were the hardest hit towns in the north west. In the north west, 17 womenswear and childrenswear outlets closed and 12 bars, clubs and pubs closed, while there was a growth in charity shops and pet shops.