According to new research by the insight agency BDRC Continental, the level of business distress in the UK has hit new lows. Company liquidations, voluntary arrangements and compulsory liquidations are all at an all time low. The research, carried out on behalf of the insolvency trade body R3, has found that just 17 percent of businesses are reporting any key indicators of distress.
This represents a considerable fall on the levels reported in September this year (28 percent), and a drop on the previous record low of 24 percent in April 2015. The survey shows just how far the economy has come, with 64 percent of the companies surveyed reporting at least one key indicator of distress in March 2012.
Record lows across the board
The telephone interviews with a senior financial decision maker in 500 UK businesses, found that three of the five key indicators of distress were at new lows. Business distress was measured using the five key indicators below:
• Regularly using maximum overdraft
• Fallen market share
• Decreased sales volumes
• Decreased profits
• Having to make redundancies
The three indicators of distress to reach record lows included: regularly using maximum overdraft (6 percent); fallen market share (5 percent); and decreased sales volumes (10 percent). That leaves decreased profits (12 percent); and having to make redundancies (4 percent), which were both within two points of their lowest levels.
Low interest rates and a healthy economy
The low levels of business distress in the UK are indicative of the current state of the UK economy. There has been a healthy level of growth in recent years, and the continuing low interest rates are helping many businesses maintain a high level of liquidity.
While companies in the oil and gas sectors have been struggling in the past few months, the reduction in oil prices has helped British businesses keep their fuel costs down. These cost reductions, combined with low inflation, are easing the financial difficulties of many businesses.
British businesses are also managing to maintain a healthy level of cash-flow thanks to the reported increase in sales volumes and profits. This, combined with a fall in the number of businesses that are overly reliant on credit, is helping to paint a positive picture for UK businesses at the current time.
Indicators of growth
This long-running survey of British businesses also takes into account five key indicators of growth, including:
• Investing in new equipment
• Increased sales volumes
• Business expanding
• Increased profits
• Market share has grown
In the latest survey, growth was also found to be at a record high, with 69 percent of businesses reporting at least one indicator of growth. This represented an increase of a single percent on the previous high (68 percent) in April 2015.
Small businesses are lagging behind
While it’s clearly good news that so many UK businesses are experiencing at least one indicator of growth, this success is not split evenly between large and smaller businesses. 87 percent of big businesses (those with 251+ employees) are experiencing growth indicators, compared with 60 percent of sole traders.
Phillip Sykes, president of R3, said: “Large companies continue to experience more signs of growth than their small counterparts, and the gap has widened since the last survey.
“It will be interesting to see the impact of incoming legislation, such as auto-enrolment and the introduction of the National Living Wage, will have on companies. The changes will be a much heavier burden for smaller businesses to bear, so we may see this disparity grow further.”