According to recent research, the last three months has seen the biggest quarterly jump in UK companies in financial distress since 2017.
In fact, as a result of the Coronavirus pandemic (and despite the prevention of legal orders against companies to pay their debts/the ban on Covid-related debt winding up petitions), over half a million companies in the UK (around 14%) have found themselves in significant financial distress.
What’s more, the Office for National Statistics’ survey on the business impact of COVID-19 found that nearly half of businesses have had a decrease in turnover this year. Back in 2019, they recorded an alarming 17,196 instances of corporate insolvency, but are expecting this figure to be easily surpassed by the end of 2020.
As a result, many of these businesses are considering restructure and redundancy in the hopes of counteracting these outcomes.
Read on to find out more about how different UK businesses have been affected, the signs your business could be in financial distress, and how our insolvency experts here at McAlister & Co can support you if your company is considering restructure and redundancy as a result of financial distress.
Which business sectors have been the most (and least) affected?
Currently, commercial real estate and property, hotels and accommodation, sports and health clubs and food and beverage settings are seeing the greatest financial distress as a result of the coronavirus pandemic.
What’s more, with the circuit-breaker lockdown in Wales in October and the England lockdown of November, the leisure, travel and retail industries have taken an additional hit.
In terms of job losses, this has left around 7.6 million people (24% pf the UK’s workforce) at significant risk of redundancy – and not just across these predominantly affected sectors, but across others too, including the arts and entertainment, manufacturing, education and more.
The industries that appear to have been the least affected are insurance firms; from life and health insurance to property and casualty firms.
How has this affected businesses of different lifespans?
While some the UK’s larger and longer-standing businesses are currently considering restructure and redundancy due to financial distress, the worst hit of the UK’s businesses are small to medium enterprises and start-ups.
According to the Business Distress Index, 42,000 SMEs have fallen into significant financial distress since lockdown. Goods Transport Businesses, Event Catering, Retail, Construction companies and businesses trading goods are among those struggling the most, and approximately 1.8 million SME jobs (predominantly in support services and health and education) are at risk.
What’s more, telecommunications & I.T., industrial transportation and logistics and travel and tourism start-up companies have seen the greatest increase in financial distress of all businesses since the first quarter of 2020.
What are the signs that a business is in financial distress?
By definition, a business in financial distress is one who “cannot generate sufficient revenues or income, making it unable to meet or pay its financial obligations.”
In the current circumstances, it’s especially important that you remain alert to any signs that your business might be in financial distress in order to prevent becoming insolvent. These can include:
1. Negative cash flow statements
If your cash flow statements are increasingly and continuously in the negative, this could mean that your company is paying more money than it is generating.
2. Defaulting on payments
If you’ve received a default notice from a creditor due to missing payments, this could be another sign that your business is in financial distress and needs support.
3. General unhappiness in the company
Unfortunately, financial distress can lead business directors to make certain cuts in the company, such as employee benefits, or make drastic changes to working strategies in order to save the business, such as restructure and redundancy.
This upheaval and change can cause owners, managers and employees to become stressed and unhappy – so if you begin to see an increase in staff turnover or a general loss of morale among your team, it could be a sign that your company is in financial distress.
4. Falling margins/poor profits
Unfortunately, if you’re seeing a fall in your profit margins, this is also a sign of business financial distress, as it suggests that your overall business costs are too high, while your income is too low.
5. Increased interest payments
Typically, financially distressed companies will feel greater pressure when it comes to interest payments on their funding debts. This is because banks/money lenders will see your business as high risk or potentially unviable.
The earlier you spot these signs, the better your chances will be for recovery.
Is your business currently in financial distress or at risk of insolvency?
If you have noticed any of the above signs that your business may be in financial distress or you are considering restructure or redundancy in the wake of the Coronavirus pandemic, be sure to contact our insolvency experts here at McAlister & Co for a free consultation.
We are always available to offer free and immediate advice and would be glad to discuss the different options we can pursue for your business!