Business Distress – what IS the true picture?

KPMG has published figures recently that show Corporate Insolvencies at their lowest level in four years.

Begbies Traynor have said that there has been a 40% fall in the number of County Court Judgements obtained in March, April and May this year, and a 73% drop in the number of winding up petitions in the same period.

Given that the media has been reporting some desperately gloomy stories around business closures and job losses, in particular from our high streets, this could be confusing…

So what is the true picture for businesses in the post Coronavirus economy?

The Government’s support measures for businesses have had a significant effect in keeping businesses afloat. Grants, finance options and payment holidays have all helped.

As we come out of Lockdown though, the insolvency figures are likely to rise rapidly.

Blair Nimmo, of KPMG predicted a strong rise in insolvency numbers in the coming quarter. He said ‘Businesses are emerging into a quite different landscape. They may be required to navigate unforgiving territory, combining the withdrawal of government support, local lockdowns, consumer caution and shrinking margins due to new health and safety regimes and reduced productivity.

‘The months ahead will see real pressure on cash flow as a consequence of the working capital demands of re-opening, whilst at the same time servicing and repaying new bank facilities, repaying tax arrears and the costs of any required redundancies.

‘Managing a ramp-up in business activity in such an uncertain economic environment will be one of the biggest challenges many directors have ever faced,’ he said.

The Begbies Traynor report declared 527,000 businesses to be in significant financial distress at the end of June 2020. This is a rise of 7% since the start of the year, and a trend that they say is set to accelerate.

The true picture is, they say, being masked by a lack of activity in the courts, as Coronavirus slows progress of cases and inhibits actions.

Julie Palmer, partner at Begbies Traynor, said: ‘Despite more than 30,000 businesses having fallen into distress since the start of the year, the real level of corporate underperformance is being concealed by inaction on distressed businesses in the courts.

‘With government initiatives to support businesses now winding down, we will start to see the true impact of coronavirus on the UK during the autumn.’

Many of the support measures from Government have simply deferred the pain point for vulnerable businesses.

So, the true position for UK Businesses may well be bleak.

The true position may get worse before it gets better. The reality though is that as business owners we do have some control. We can stay agile, react to opportunities and respond to challenges far faster than the big corporates who are announcing job losses and closures across the media.

If you’re worried about your business, NOW is the time to really take stock and make sure that you’re in the best place you can be. Do get in touch if you’re worried about any aspect of your business.