Insolvency Partner Comments On New R3 Research

Nationally, 29% of SMEs have seen a reduction in sales volumes, compared to 6% of big businesses - according to R3, the insolvency trade body.

The research also found that over one third (34%) of SMEs are experiencing decreased profits compared to 19% of big businesses.

Andrew Walker, chair of R3 in Yorkshire and partner at Irwin Mitchell, comments: “The Government has created a number of schemes to support SMEs as they are vital to the health of the economy, but it’s clear that further help is needed if they are to survive this difficult economic environment.

"For a region like Yorkshire with a high proportion of smaller, family-owned businesses, it will be crucial that this sector undergoes a real recovery in 2012.  More support is needed over the coming year otherwise more businesses will inevitably fail or else continue to limp along, damaging competition.”

Yorkshire appears to be fairly resilient with businesses in the North showing similar levels of distress to the national average.  For example, 35% of Northern businesses experienced decreased profits, just slightly higher than the UK average of 34%; and 20% made frequent use of their maximum overdraft facility compared with 17% nationally. 

The report also asked respondents if they are experiencing a number of growth indicators.  The results showed some encouraging signs with 21% of Northern businesses reporting growth in market share, higher than the national average of 17%.

However, the research also found that in spite of the fact that some businesses are growing, other key indicators of health remained low with only 13% of businesses in the North reporting business expansion; only 11% saying they had increased the workforce; and only 5% saying they had increased export orders.

Nationally, fewer businesses (58%) are feeling signs of distress. This is down by 10 percentage points on last quarter (68%) and significantly lower than December 2010, when over three quarters (77%) of businesses reported feeling signs of distress.

Walker continues:  “Could this be the calm before the storm? Many ‘zombie’ businesses have been surviving but not thriving and we know that businesses do not fail in the middle of a recession, but when the economy is recovering.

"The ‘insolvency lag’ we have seen in previous recessions is slower to materialise this time around, and traditionally insolvencies increase during the recovery phase. This is because a company’s financial outlook starts to improve and creditors stand to achieve greater returns than they would during the downturn. Furthermore, changes in the policies of lenders and the Government could force ‘a clear out of the system’, but whether this will happen in 2012 is doubtful.”