UK businesses under pressure as insolvencies rise
Quarterly insolvency statistics for the third quarter of 2022 show corporate insolvencies are at the highest level since 2009 and rising. Information recently published for England and Wales confirms that between 1 July and 30 September 2022 (Q3 2022), there were 5,595 (seasonally adjusted) registered company insolvencies.
This figure comprises 4,800 voluntary liquidations (CVL’s), 492 compulsory liquidations, 274 administrations and 29 company voluntary arrangements (CVAs). In addition, 40 companies obtained moratoriums, giving them time to explore rescue or restructuring plans, and 12 registered restructuring plans at Companies House.
The construction sector, vehicle trade and repair and hospitality were all hard-hit in Q3. For all businesses energy costs remains a key concern, as well as reduced consumer spending as a result of the cost-of-living crisis.
What is driving this increase in insolvencies?
The increased cost of energy and raw materials is a key concern for many businesses, coupled with continued supply chain disruption, and difficult in meeting debt obligations. According to a recent survey, 1 in 10 UK businesses reported a moderate to severe risk of insolvency. Concerns regarding energy prices was felt across all businesses, with 22% saying this challenge was their main concern.
In addition, financial support which was provided throughout 2020 and 2021 has ended and many businesses are burdened with additional debt accrued throughout the pandemic. All of this creates a ‘perfect storm’ for businesses which have already faced significant challenges.
What can be done to protect your company’s finances and avoid insolvency?
Review budgets
Revisit your budgets and financial projections and ensure they are realistic. Consider what you reasonably expect to make in terms of sales and allocate budgets against all operating costs (such as your direct costs, insurance, marketing, payroll, premises and professional costs). Periodically review these forecasts and if actual figures are far from your original projections, consider why, and act upon this information.
Reviewing funding
Reliance on funding is probably inevitable at times throughout the life of a business, but over-indebtedness should be avoided wherever possible. There are many ways to get business funding, ranging from start-up loans, traditional bank loans, factoring, or peer-to-peer lending. Consider what works for your business but be mindful that some of these options may require commitment from you, by a personal guarantee.
Review management accounts
Where possible, keep management accounts on a monthly or quarterly basis. These should help you to identify specific concerns at an early stage and enable you to take professional advice where necessary.
Maintain good relationships with key suppliers
Whatever your business you will require supplies from other companies and should try to keep these relationships positive. If you fail to pay your suppliers on time and in full, they may eventually cease supply. Where this is not possible, taking time to speak to your suppliers and facing the situation head-on is likely to bring better results than burying your head.
Dealing with overdue Invoices
Unpaid invoices have a negative effect on any business. If payments regularly exceed the agreed terms, then you may want to charge interest for any period over and above that. If a long-standing customer is struggling, it might be appropriate to take a more lenient approach but be clear on your position and ultimately ensure that safeguards are in place.
What should I do if my business is struggling?
If your company is struggling the most important thing to do is seek advice. By speaking to a Licenced Insolvency Practitioner, you can work together to establish whether the problem is temporary, or whether more formal action is required.
An Insolvency Practitioner is best placed to provide advice on all the options available. If the problems are too significant and company closure is appropriate, an Insolvency Practitioner can explain what this means and how to proceed.
Help from a Licenced Insolvency Practitioner
Keywood Group is a firm of Licenced Insolvency Practitioners with offices in Birmingham and London. Our team has over 20 years’ experience in advising businesses on their options and dealing with company closure. Our experienced team will work with you to assess the options available and guide you through the process.
If you want further information, please contact us for a no obligation chat.
