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Financial distress differences between sectors
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Which UK industry sectors are experiencing the most insolvency appointments?
Figures from the Insolvency Service show that in 2015 the construction industry suffered the highest number of insolvencies in England and Wales, with the wholesale and retail trade coming a close second.
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Each industry has to deal with its own unique pressures and challenges in today’s economic climate, including a rise in the minimum wage and the introduction of automatic enrolment, to name just two.
Even if companies are able to withstand the additional cash flow burden inflicted by new legislation, they remain under considerable pressure from ‘standard’ business issues. These include the emergence of strong new competition, a market that may be constricting, or the understandable temptation to overtrade.
Here we look at the industry sectors which have struggled during 2015, along with an indication of the number of insolvency appointments in each industry.
The construction industry is currently experiencing the most insolvency appointments in England and Wales, with the total figure in this sector between January and March this year showing little respite at 672.
It’s been suggested that a more collaborative approach might improve the future of this industry, with core contractors and suppliers working closer together to share the inevitable risks.
This would place everyone in a better position within a project, and more likely to achieve the best result for the end-client.
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The retail trade saw the most insolvency appointments of this group during 2015. A total of 1,019 insolvencies were experienced in retail, with 796 in wholesale trade. Issues commonly faced by retailers include low footfall, unseasonable weather, and a race to the lowest price simply to remain competitive or to move older stock.
Online sales continue to grow, however, with retailers attempting to meet the new demands placed on them by customers looking for flexibility and an easier way to shop. But this is still an evolving market, which generally holds less profit for retailers.
Office administrative, office support, and other business support activities experienced the highest number of insolvency appointments within this group in 2015, at 1,043. Small local companies in this sector tend to provide specific administrative and support services to public and private sector firms, but can find it difficult to grow due to lack of funding.
An advanced knowledge of their market may not always compensate for lack of available finance, sought to either develop and grow, or simply stay afloat.
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The hospitality industry has to cope with payment of the new Living Wage which was introduced in April this year. Many staff in the hospitality sector have traditionally been paid at minimum wage level, so the effects of higher payroll liabilities are likely to be keenly felt.
Margins which are already low will be further narrowed, potentially causing serious problems for this sector in 2016. Employers may need to cut bonuses and other employee benefits in an effort to manage the rising wage bill.
A marked slowdown of economic growth in China is just one of the adverse factors affecting manufacturing in this country. Although British vehicle manufacturing experienced significant growth in 2015, difficult trading conditions badly affected other sectors.
High energy prices and the prevalence of cheap imports made the steel sector a notable example of British manufacturing under pressure. Major producers struggled to stay afloat in 2015, as a strong pound also made it difficult for exporters to maintain previous profit levels.
The professional, scientific and technical sector includes specialist individuals and firms of practitioners generating income from consulting and professional services. The increased payroll cost per employee reflecting their advanced knowledge can cause some businesses in this sector to struggle, particularly if a specific event or series of misfortunes outside of their control causes turnover to fall.
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Smaller manufacturers dealing in ‘stand alone’ PCs and laptops have had to cope with a shrinking market as consumer demand for tablets and smart phones takes over. High-profile household names also leave little room for smaller companies to compete, resulting in low profit margins and lack of growth.
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