Written By Laurence Vogel
Marketing & Business Development Director
January 25th, 2024

Further to my article last week about the ‘Looming Storm’ for businesses, this morning I saw more concerning figures coming out from Begbies Traynor and their Red Flag Alert. Tens of thousands of businesses are on the brink of collapse as higher borrowing costs and taxes pile pressure on the economy. There are nearly 50,000 companies on the edge of failure as they grapple with a “double whammy” of steeper interest rates and consumer gloom. Planned hikes to Corporation Tax and the National Living Wage are also adding to costs for debt-laden businesses.

A 26% Surge in Companies in Financial Distress

Begbies Traynor’s Red Flag Alert warned that 47,477 companies were in “critical” financial distress at the end of 2023, an increase of 10,000 since September. The 26% surge from the third quarter is the second consecutive period where critical financial distress has grown by more than a quarter. Many companies on the list are expected to go bust, leaving workers unemployed and creditors out of pocket.

The days of cheap money are over with companies who borrowed to stay afloat during Covid now are having to repay their bounceback loans, making things even tougher.

The Bank of England’s rate increases have added to the cost of servicing debts that were taken out when borrowing costs were at historic lows. In just over 2 years rates have gone from historic lows of 0.1pc to a 16 year high at 5.25%.

For smaller businesses, this could mean the end of the road. They may not be able to borrow their way out of trouble so are likely to need operational and financial restructurings.

RankSectorCritical Financial DistressSignificant Financial Distress
2Support Services7,09682,431
3Real Estate & Property Services6,22862,176
4Professional Services4,34751,412
5General Retailers3,13333,622
6Telecommunications & Information Technology2,83035,475
7Health & Education2,71935,979
9Financial Services1,37317,180
10Food & Drug Retailers1,343
10Leisure & Cultural Activities14,983
Source: Begbies Traynor Red Flag Alert 22/1/24

Construction and Property Hardest Hit

Both construction and real estate are the sectors hardest hit with London and the South East are bearing the brunt of the problems, with more than 22,000 companies in a critical condition at the year end. The Midlands is the next worst region with around 6,000 facing distress and around 5,000 in the North West.

Between 17,000 and 25,000 companies enter insolvency every year on average, meaning the UK could see a doubling in the number of insolvencies if all “critical” firms go under.

There are no clear figures on how much debt UK corporates have taken but the Bank of England has warned of a £1.8 trillion credit market which developed in the low interest rate years.

Businesses are also facing higher burdens on their costs from Government policy. Chancellor Jeremy Hunt unveiled plans in his Autumn Statement to hike the minimum wage by £1 an hour to £11.44 from April while Corporation Tax has also been hiked to 25pc from 19pc.

AABRS are a friendly insolvency practice in London who have supported over 700 businesses in the last 2 years through difficult times. If you know anyone who is struggling, then please don’t hesitate to reach out to us.

We would be only too happy to give business owners some free advice and walk through the options available to them. Give me a call on 07968 849335 or email lv@aabrs.com.