Member Article

Optimism prevailing amid growing North East business distress, says trade body chief

Companies across the region are looking forward to a successful 2018 despite a rise over the last six months in the proportion of them showing at least one sign of business distress.

New research by insolvency and restructuring trade body R3 and BDRC indicates that the proportion of companies across the North East, Yorkshire and Humberside reporting at least one sign of business growth fell from 68% in April this year to just 45% in September.

Over the same period, the proportion of such firms saying they had experienced one or more signs of distress jumped from 14% to 27%.

But when asked what they thought about their prospects for the next year, almost a quarter (24%) of those surveyed were expecting to see their businesses grow, while a further 72% were planning on things remaining fairly stable.

The most common sign of business distress among regional firms remains late payment of invoices, with one in six firms (16%) saying they were owed payment on invoices that were 30 days past their due date.

Decreasing sales volumes was the next most common sign of business distress (14%), followed by firms regularly using their maximum overdraft (13%) and decreasing market share (6%).

On the upside, more than a quarter (27%) of the firms in the North East, Yorkshire and Humberside that took part in R3’s long-running survey of business distress said they were experiencing increased profits, while a quarter (25%) said they were expanding in terms of geography, employee numbers of areas of operation.

One fifth (20%) of those surveyed had grown their market share, while 14% had seen a recent increase in sales volumes.

Neil Harrold, chair of R3 in the North East and a partner with Hay & Kilner Law Firm, says: “There’s been a very clear increase in regional distress levels this year, alongside a drop in growth, and the insolvency practitioners and business advisory experts among R3 North East’s membership are reporting a rise in the volume of enquiries they are receiving from businesspeople who want to get a clear picture of their options should their situations worsen.

“Many companies have seen their fixed costs rise over the past year, whether due to higher business rates, an increase in the National Minimum Wage, inflation’s upward trajectory, higher fuel prices, or the fall in the pound pushing up import prices.

“The economy’s growth has not been rapid enough to offset these greater outlays, leaving some firms in a precarious position, but despite this, there remains a strong degree of confidence among regional business owners that they can still continue to achieve commercial success, which is a demonstration of the resilience which has always been a key component of the North East economy.

“It’s reasonable to expect that, in the present economic climate, the coming year will be challenging for many firms, but isn’t dulling the optimism of the vast majority of business owners who feel they can at least hold their own, if not do better than they did over the last 12 months.

“There are always other options for firms which are experiencing distress, and the regulated advisors within the insolvency and restructuring profession can often help directors to make the best choices for their companies.

“The sooner the directors of a company look for for expert advice from these professionals, the more options they will have around finding the best possible outcome for a distressed firm.”

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