Insolvency figures on the rise – How to protect your business

Over the last few years, businesses across the UK have faced increasing financial pressures, leading to a noticeable rise in company insolvencies.

Recent data from the Insolvency Service reveals that from January to August 2024, there were 16,481 company insolvencies in England and Wales, more than double the number reported during the same period in 2021.

What are the contributing factors to insolvencies?

The UK’s inflation rate hit its peak in October 2022 at 11.1 per cent, and while it has started to stabilise, it is still above the target levels.

The high inflation rate is eroding profit margins, particularly for businesses that are unable to pass on the rising costs of goods, services, and wages to their customers.

In early 2024, the Bank of England raised the base rate to 5.25 per cent, the highest level in 16 years, though it has since been reduced to 5 per cent.

For businesses that rely on credit or loans, the high interest rates have significantly increased borrowing costs, pushing many with tight cash flows toward insolvency.

The weight of post-pandemic debt is also a significant factor with many businesses still struggling to repay loans taken out during that time.

Additionally, the ongoing global supply chain issues have led to delays and rising material costs. This has mostly impacted the construction and manufacturing sectors.

A closer look at the South West

The national statistics are concerning, but the South West faces its own economic pressures that make it particularly vulnerable to insolvencies.

The number of companies in the region filing for administration during the first half of the year has reportedly risen by 18.2 per cent.

Coastal areas like Cornwall, Devon, and Dorset heavily depend on tourism, particularly in the hospitality and leisure sectors.

With the decline in domestic tourism, worsened by the ongoing cost-of-living crisis, these businesses have suffered significantly.

Many small and medium-sized enterprises (SMEs) in the South West are more vulnerable to financial instability than larger companies because they often have limited financial reserves, depend on just a few key clients for their income, and can be significantly impacted by changes in the market.

Rural businesses often face unique challenges including their isolation from major transport routes, which raises logistics costs, and creates challenges for attracting skilled labour to their company.

Strategies to help your business avoid insolvency

While insolvency is a very real issue many business owners across the region (and the country) face, there are strategies you can implement to minimise the risk of becoming just another statistic:

  • Conduct regular financial health checks – Regularly reviewing your company’s finances is essential. A thorough audit with an accountant can help identify potential issues before they escalate, allowing you to manage cash flow, debts, and profitability more effectively.
  • Manage cash flow wisely – Ensure steady cash flow by tightening credit controls and encouraging early payments from clients. Building cash reserves during peak times can provide a buffer during quieter periods.
  • Negotiate – Combat rising costs by negotiating better deals with suppliers, outsourcing non-core tasks, and streamlining operations for maximum efficiency.
  • Seek professional advice – Don’t wait until financial problems arise. Contact your accountant early for guidance on debt restructuring or accessing support schemes.
  • Diversify revenue streams – Exploring new avenues for income, such as expanding into e-commerce or offering year-round services can help reduce risk.
  • Restructure your business – Use insolvency procedures to help restructure your business.

If you’re concerned about your business’s financial future, our team of Restructuring and Insolvency specialists are here to provide the insights and support you need.

Contact us today for a confidential consultation, and let’s work together to develop a strategy that supports you and your business every step of the way.

Posted in News, Newswire.