The latest Red Flag Alert report from Begbies Traynor shows a fall of almost two fifths in the number of British firms facing ‘critical distress’.
Between the second quarters of 2012 and 2013, the precise figure of
critically distressed companies in the UK dropped from 4,947 to 3,001 – its biggest drop since early 2011.
Some sector-specific shocks still remain, but in general the short-term indication is of substantial recovery in the economy.
Begbies Traynor partner Julie Palmer says: “We have real fears that many SMEs will have serious financial difficulties at the time they least expect – during a recovery.
“Our experience has shown time and time again that many SMEs run out of cash during the recovery phase, as there is a real temptation to overtrade.”
Companies in certain sectors should be more watchful of their credit than most, as supply chains in the pubs and restaurants trade, for example, are 2.5 times more likely to be subject to adverse creditor actions than the national average.
According to Ms Palmer, this “may go some way to explaining the fragility of this group”, which has seen a 23% drop in critical problems year-on-year, but a 27% rise sequentially since Q1 2013.
The report also highlights the importance of working with reliable organisations on any legal issues, as 160 legal practices are currently being closely supervised by the Solicitors Regulation Authority due to concerns including possible financial trouble.
These include 30 of the nation’s top 200 legal firms, and Ms Palmer says high-street names, mid-tier and large regional practices alike are showing signs of vulnerability.
As such, you should take extra care to check the stability of the professional services firms with which you work, before signing any binding contracts.