Statistics reflect ongoing business struggles…

News,

Ernst & Young Global, or EY, have reported some fairly dire statistics around the number of Profit Warnings in the UK in the first 9 months of the year. The reported number in that period, 524, far exceeded the highest ever ANNUAL total, recorded as 506 in 2001. More are expected too, as a result of Coronavirus and Brexit uncertainty and reducing Government support packages.

In the last twelve months, 36% of all UK quoted companies have lowered their profit forecasts at least once, compared to 18% in 2008 and 23% in 2001.

In the first three quarters of 2020 there were 449 profit warnings linked to Covid-19 with the sectors where social-distancing has reduced demand and capacity being most affected.

However, Q3 2020 data indicates operating costs are now of increasing concern, with 24% of profit warnings citing rising overheads compared with 12% last year.

Financial Distress Figures

Begbies Traynor has reported that the last three months have seen the biggest quarterly jump in companies in financial distress since 2017. This is despite reduced court capacity caused by Coronavirus, preventing many County Court Judgements (CCJs) and winding up petitions being issued.

There’s been a 62% drop in the number of CCJs lodged during July, August and September 2020 compared to the same period in 2019. In the same period, just 101 winding up petitions were lodged, compared to 1,109 in 2019.

They reported a 6% increase in the number of businesses reporting ‘significant distress’ in Quarter 3 compared to the previous 3 months.

The report analysed 22 sectors and found double-digit percentage increases in financial distress in 10 sectors. These include food and drug retailers (14%), construction (11%), and real estate and property (11%) sectors.

Ric Traynor, executive chairman of Begbies Traynor Group, said ‘Many of these businesses were debt laden before the pandemic struck and had little prospect of a viable turnaround. They have seen their life prolonged by the availability of government loans and employee cost subsidies, as evidenced by the 30% + fall in insolvencies over the last six months. Inevitably their underlying lack of profitability and accumulated debt will catch up with them once the subsidies end and they face the harsh realities of the challenging economic environment.’

Insolvency risks

The latest information from the Office for National Statistics (ONS) shows that 71% of businesses said they were at no or low risk of insolvency, but 17% of those in accommodation and food services were at a severe risk. This was across all industries.

Initial results from the ONS survey on the business impact for the period 21 September to 4 October indicate that of businesses that had not permanently ceased trading, 41% said they had less than six months’ cash reserves and 4% said they had none.

A third (35%) said they had more than six months’ cash reserves and 20% were not sure.

 

All of these statistics reinforce the importance of careful cash management, and just how hard businesses of all sizes have found the last eight months. Sadly, the next eight months are unlikely to be vastly improved.

If you’re unsure of what cash reserves you have in your business, after all that has gone on this year, you MUST get a handle on it, and soon! If you need extra cash to help your business whether the next few months, the easiest way to get that is going to be through either a CBILS Loan or a Bounce Back loan, but they are not going to be available much longer. Act now or risk missing out entirely.

If you need help with working out how long your reserves will last, or around cash generally, or even about how to increase the chances of your business surviving through Coronavirus and Brexit, please get in touch. We’re here to help.