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UK business distress hits record low – R3

By CreditMan Tuesday, April 8, 2014

A record low of 33% of British businesses are showing signs of business distress, according to the latest Business Distress Index from R3, the insolvency trade body.

R3 has tracked five key indicators of business distress since March 2012 – including decreasing profits, sales volumes, or market share, the regular use of maximum overdraft facilities, and new redundancies. Each indicator measures the share of UK businesses experiencing that particular sign of distress.

In the latest survey, all indicators are at or near record lows. The share of businesses experiencing at least one sign of distress is now almost half the 64% of businesses in the same position when the survey first started in March 2012.

Giles Frampton, R3 vice-president, says: “Business distress has tumbled over the past two years as businesses have got over the worst of the recession. This has been matched by steadily falling corporate insolvency numbers.”

“Historically, business failures increase as the economy bounces back: rapid economic growth can be a problem for a business that used up cash reserves in a recession or that isn’t prepared for expansion. However, low interest rates and the much slower recovery we have had up until the last nine months or so have brought struggling businesses time to sort out their problems.”

Giles Frampton adds: “It is interesting to see, however, that business distress has been falling much more slowly over the past six months than it had done previously. It may be that distress levels are falling back to ‘normal’ levels, or that the recent pick-up in the economy is beginning to have an effect.”

R3’s latest survey also found that indicators of business growth remain close to the record highs hit in the last survey in autumn 2013: 65% of businesses are showing at least one sign of growth, slightly down from the record 68% in October 2013, but up from just 46% in March 2012.

Signs of business growth include: investing in new equipment (37%); increased sales volumes (34%); increased profits (30%); business expansion (28%); and growing market share (28%).

Giles Frampton comments: “It’s very encouraging that business growth is keeping pace with the record figures we saw in the autumn. The repeat performance of the last survey’s strong figures gives weight to the idea that the economic upturn in the last six months was more than just a blip.”

“Growth is still slightly uneven, with some regions much more positive than others, and larger businesses do have more to celebrate than their smaller counterparts.”

“That said, even the poorest performing region in terms of growth – the South West and Wales – is seeing half of its businesses show growth indicators, while almost two-thirds of the smallest businesses are showing signs of growth.”

Burden of regulation concerns businesses

Only 11% of British businesses feel that the burden of business regulation has fallen since the 2010 general election, despite government promises to cut red tape, according to R3’s survey.

By contrast, 39% of businesses feel that their regulatory burden has increased, while 47% feel that it has stayed the same.

Giles Frampton says: “The Government’s record on deregulation has been decidedly mixed so far. Although the sentiment behind ideas like the ‘one-in, two-out’ rule is laudable, it is not clear that the regulations being removed are being much noticed by businesses.”

“Speaking from the insolvency profession’s perspective, we have seen ‘deregulatory’ ideas proposed by the government that would actually add to the regulatory burden of the UK’s insolvency practitioners. Business and government aren’t necessarily seeing eye-to-eye on deregulation.”

R3 is the trade body for Insolvency Professionals, and represents 97% of the UK’s Insolvency Practitioners.