SMEs told to ‘beware the insolvency lag’
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As the UK economy enters a stronger cycle, SMEs have been told to “invest or die” in order to avoid becoming a statistic in the traditional “insolvency lag”.

 

 

This is the phenomenon whereby the rate of business insolvencies typically spikes not during a recession, but in the recovery phase of the cycle.

 

It is triggered by businesses trying to keep a cap on their costs, rather than investing to take advantage of returning market activity.

 

Kirsty McGregor, chairman of the Corporate Finance Network, says it is important to be aware of the potential problems, in light of the British Chambers of Commerce’s forecast that the UK economy will, in 2014, overtake its pre-recession level from 2008.

 

She says: “A staggering 65% of businesses have [credit ratings] of above-average risk, high risk or maximum risk.

 

“These businesses are currently surviving through the support of HMRC, the banks and low interest rates.”

 

But she adds that this is an “artificial economy” that will come to an end as the economy continues its upturn.

 

The Corporate Finance Network are therefore offering four pieces of advice to SMEs:

 

  1. Review your business health and free up available funds for investment.
  2. Build a growth plan for the new economic cycle.
  3. Be brave – and consider new and non-standard options.
  4. Take the best standard of advice that you can afford.

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