Small business Insolvencies to rise by 10% in 2011



Tax collectors will leave over 1 billion pounds of tax money uncollected.

Disposable income decreasing

A report has forecast small businesses, especially those in a retail environment, are to come under increasing financial pressure during 2011.
Research suggests, that UK firms are to see serious financial difficulties more than any time in the last two years.

In the last three months of 2010 , almost 148,000 firms faced serious financial problems.

It is suggested that Government cuts are making the problem worse.

The report predicted a rise as high as 10%  in insolvencies in 2011, this means that as many as 23,500 small businesses could be affected.

In comparison with the July to September quarter of 2010, this period show an increase of 20% in the number of businesses facing serious or critical financial issues.

There are “real signs of distress” within UK firms, according to the report.

The report from Begbies Traynor, insolvencies  showed that those who had been experiencing critical problems owe more than £52.7bn to creditors, suppliers and service providers.

This is down on the £57.5bn owed during the last quarter.

Ric Traynor, Executive Chairman of Begbies Traynor Group, said:

“Today’s figures show that UK businesses are demonstrating real signs of distress and that trade creditors are both losing patience with their debtors and in need of collecting cash into their own businesses.”

The IT, business services and construction sectors in particular were feeling the pinch, it found.

The report has shown that the sectors most affected by the public spending cuts are: construction, IT, recruitment, advertising and business services. With these sectors already seen a 24% increase in financial distress

“The figures demonstrate that the sectors most reliant on government spending are already feeling the impact of public sector cuts,” said Ric Traynor, chairman of Begbies Traynor.
“For smaller businesses, we are entering the darkest hour before the dawn;Ric Traynor Executive Chairman of Begbies Traynor.

“With the full implementation of budget cuts only starting to show through in these figures, public sector-exposed sectors are likely to face significant increases in the level of corporate failures over the course of 2011.”

The report adds that retail firms will be hit hard by the increased pressure as high inflation, tax rises and job cuts results in less disposable income.

This means that sectors that are not an essential for the average man would see “an increase in business failures”, he added.

Last weeks figures show that inflation rose to 3.7% in December from 3.3% n November.

Q4 2010 Red Flag Alert Statistics
‘Significant’ and ‘Critical’ problems by Sector:

Sector Q4 2009 Q4 2010 Percentage

Change

Q3 2010 Q4 2010 Percentage

Change

Automotive 4,021 3,826 -5% 3,352 3,826 14%
Construction 7,269 19,167 8% 15,894 19,167 27%
IT 7,269 7,915 9% 6,231 7,915 27%
Engineering 1,934 2,129 10% 1,698 2,129 25%
Print & Packaging 2,091 2,211 6% 1,757 2,211 26%
Manufacturing 6,111 6,478 6% 5,353 6,478 21%
Financial Services 3,154 2,887 -8% 2,587 2,887 12%
Property Services 11,556 13,982 21% 12,097 13,982 16%
Hire/Rental Services 985 901 -9% 894 901 1%
Recruitment 1,459 1,455 0% 1,231 1,455 18%
Advertising 980 1,036 6% 892 1,036 16%
Professional Services 8,115 8,293 2% 7,035 8,293 18%
Business Services 30,782 31,961 4% 25,508 31,961 25%
Retail 10,199 10,250 1% 8,751 10,250 17%
Wholesale 5,929 6,520 10% 5,001 6,520 30%
Transport & Comms 5,449 5,344 -2% 4,540 5,344 18%
Others 23,757 23,487 -1% 20,540 23,481 14%
UK Total 141,527 147,836 4% 123,361 147,836 20%

Figures also released last week show that unemployment rose by 49,000 to nearly 2.5 million between September and November.

In 2010 there were 15% fewer insolvencies that in 2009.

“For smaller businesses, we are entering the darkest hour before the dawn, as they face the dual challenges of weak domestic demand and greater pressure from larger competitors and business customers looking to preserve their own profitability,” said Mr Traynor.

Are you a business owner facing financial difficulty? Do you work in a small business that is feeling the pinch? Post your comments and experiences below.

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