Written by: Keith Tully
Reviewed: Wednesday 25th October, 2017
A growing number of British companies are showing signs of being in financial distress, according to a new set of figures on the subject.
The insolvency trade body R3 has been keeping track of key indicators of financial difficulty among UK companies and discovered some potential causes for concern.
In April of this year, one in five businesses exhibited one or more sign of financial distress but by September that proportion had increased to one in four.
Signs taken by R3 as being an indication of potential distress among businesses include a decrease in revenue levels and an increased reliance on overdraft facilities.
A variety of factors are understood to have contributed towards creating a situation in which more and more companies are struggling to make positive financial progress, with rising costs and inflationary pressures prominent among them.
Higher fuel costs, the fall in the value of the pound against other currencies and pressure to increase wages are all believed to have contributed to the problems that many companies have been facing in recent months.
Rises in business rates have also been a serious cause for financial concern for thousands of businesses over the course of this year.
“The economy’s growth has not been rapid enough to offset these greater outlays, leaving some firms in a precarious position,” said Adrian Hyde, R3 president.
“There’s been a very firm increase in distress levels over that last 18 months, alongside a drop in growth,” he said.
“Businesses have moved on from record high growth levels and it looks like a new phase of the economic cycle has started.”
A major issue for many thousands of UK companies at present is the relative lack of clarity on the likely impact of Britain’s departure for the European Union.
Adrian Hyde from R3 has described the current economic situation as becoming “murkier” in recent months with the terms of a post-Brexit relationship between the UK and EU countries still be negotiated.
The Institute of Chartered Accountants in England and Wales (ICAEW) said recently that it expects the Brexit process to have the effect of increasing insolvency rates among UK companies in the coming months.
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