R3’s latest Business Distress Index shows that 60 per cent of companies in the North are reporting at least one sign of distress, compared to 79 per cent last quarter. There were reductions in nearly all the main indicators of distress, and also stronger indications of growth.

The survey found that 30 per cent per cent of Northern businesses said they were suffering decreased profits, whilst 29 per cent had experienced falling sales, 17 per cent were having cash-flow problems, nine per cent found it hard to pay invoices on time and four per cent had made redundancies.

By contrast, 36 per cent of companies said they were investing in new equipment such as IT – up from 21 per cent the previous quarter, while 30 per cent had increased profits and 16 per cent were expanding.

Jeremy Oddie, chair of R3 in the North West and head of recoveries at Mitchell Charlesworth, said: “The results are encouraging and indicate early signs of recovery. However levels of distress remain high and, with recent figures showing that the economy contracted in the last quarter, it confirms that we are by no means out of the woods yet. 2012 will be a dangerous time for businesses as they face difficult economic conditions and lower consumer spending at a time when they need to focus on rebuilding their reserves to support expansion.”

The report also found that, in the country as a whole, SMEs displayed higher levels of distress than big businesses. Twenty-nine per cent of SMEs have seen a reduction in sales volumes, compared to only six per cent of big businesses.

It revealed that companies which were able to make and receive online payments were faring better than those who couldn’t. Thirty-nine per cent of those who were unable to use online payments were experiencing decreased profits, compared to 25 per cent of those who could, and 34 per cent of those unable to use online payments had seen a reduction in sales volumes, compared to only 19 per cent who could.

Jeremy Oddie added: “Businesses and consumers find it easier and quicker to make and receive payments online. In 2012, it is very likely that those who are not making use of online services to streamline basic business processes will get left behind.”

“Being realistic, it is not possible to save every struggling retailer and we can expect to lose some more, including some big names before this is over. In these cases, it is important to provide support for those who do lose their jobs. R3 and Jobcentre Plus, with backing from the Ministers for Insolvency and Employment, have agreed to work together to give support to those facing redundancy.

The early warning system allows Jobcentre Plus to target their resources and provide advice and assistance through the Rapid Response Service (RRS). RRS aims to address the effects of job losses on individuals and on the local community by helping people move rapidly into alternative employment without the need to claim welfare benefits.

“To date, some 32,000 individuals facing redundancy have benefitted from this initiative in regard to employment rights and more importantly in assistance to find new jobs”

The figures show that 48 companies were acquired out of administration or other formal insolvency procedures during the year, compared to 65 the previous year. Distressed deals accounted for one in 10 of all mergers and acquisitions in 2011, compared to one in seven during 2010, and one in five when activity peaked in late 2009.

Jeremy Oddie, North West chair of R3 and head of recoveries at Mitchell Charlesworth, said: “The continued fall in acquisitions of insolvent businesses has little relation to the number of insolvencies, but is likely to be due to a combination of factors.

“Not only has funding for acquisitions been hard to come by, but with the uncertainty in the Eurozone, many companies will have preferred to focus on their core business. The more recent insolvency cases may have also included a high number of zombie companies which are of little interest to investors.

“However buyers are still active in the market. These figures may well reflect the trend to structure deals as asset sales rather than company acquisitions because it makes for a more straightforward and less risky transaction.”

The survey showed that four out of five northern businesses (80 per cent) would be adversely affected in some way by a bout of severe weather. Over half (58 per cent) said staff would be unable to get to work and half (51 per cent) would suffer reduced profits.

One in eight (13 per cent) said they would have to ask to extend their overdraft or need access to additional finance, while one in 25 (four per cent) said they feared it could tip them into insolvency.

Jeremy Oddie, North West regional chair of R3, said: “A few days of icy weather this year could easily result in financial disaster, especially for those businesses which are already struggling. Last year the weather caught us all off guard – this year we’d advise businesses to plan for the worst to avoid taking a real hit if trading suffers.”

Through the country as a whole, retail and distribution businesses were most concerned about the effect of a cold spell. Jeremy Oddie added: “It’s no surprise that retailers are worried. R3’s Business Distress Index has shown that distress levels amongst retailers are the highest of any sector, with 58 per cent reporting a drop in profits this year.

“Although the last retail figures showed sales were up, people are likely to curb their spending again after Christmas. A cold spell, coming on top of the quarter day at the end of December when rent is due, could put many out of business. Any company that is struggling should seek the advice of a professional to ensure it has the best chance of survival.”

Not only are firms under pressure from rising fuel costs and the duty imposed on it, but also European regulations that require them to have access to capital to be able to operate.

Jeremy Oddie, North West regional chair of R3, says: “Under the rules, hauliers have to be able to demonstrate their ongoing financial viability, which in practice means they need to have significant amounts of capital in the bank and available to them. The banks’ current reluctance to grant credit is placing increasing pressure on hauliers’ operations.”

His view is backed by David Glover, director at specialist transport and commercial law firm Marshall Glover in Lancaster, who explains: “The last few years have almost produced the perfect storm for the regional haulage industry – not only has the cost of fuel risen dramatically, but the decline in the retail sector has meant that there have been fewer cargo loads that need transportation and hence more competition.

“The cherry on the top has been the availability of finance from the banks becoming far less flexible. Hauliers need to have access to £4,500 for each vehicle they run, as well as a further £8,100 for overall expenses, so any cash that might have been set aside for investment in the company or its fleet has generally been swallowed up elsewhere.”

He warns that smaller independent firms simply cannot match the charges from larger businesses which benefit from economies of scale and should instead focus on doing solely what they do best, making best use of the capital that they do have available and maximising their commercial returns as far as they can.

Jeremy Oddie adds: “The industry is suffering from the highest level of fuel duty in the EU with firms struggling to remain competitive and solvent during a period of recession and then slow economic growth. The Chancellor has postponed a rise in fuel duty of 3p per litre from January 2012 to June 2012 and this may allow firms a short respite.

R3’s latest Personal Debt Snapshot shows that two out of three people in the region (65%) are now worried about the amount they owe – up from 40% a year ago. It reveals that the North West is one of the worst regions in the country for debt worries, beaten only by the North East and London.

According to the survey, over half of the North West’s population (54%) now struggle to make it to ‘payday’, a rise of 12 percentage points on last year. It also reveals the presence of a new breed of ‘zombie debtors’ who are paying off the interest on their loans without repaying the capital – and shows that large numbers of people are now considering taking out a payday loan.

Jeremy Oddie, North West regional chair of R3 and a head of recoveries at Mitchell Charlesworth, said: “Recent figures show consumer lending has been on the rise as people continue to borrow money. With rising inflation and continuing job losses, it’s not surprising that debt worries are now at record levels.

“Many people are only paying the interest on their debt rather than paying off the debt itself, but they cannot carry ‘hanging on’ in this way forever. They will have very few options should interest rates rise or their circumstances change.

“Debt worries can be very distressing. People who do feel their debts are out of control need to find a longer-term solution and should seek independent financial advice from a regulated insolvency pracitioner or Citizens Advice Bureau .”

R3’s research reveals, through GB  as a whole, 3.5 million adults are considering taking out a payday loan over the next six months. Jeremy Oddie adds: “Payday loans are not the best way to resolve debt struggles.  We know that many who take them out find them to be a negative experience, often escalating financial troubles.”

The figures for the third quarter of 2011 show there were 673 administrations – down by 3.1 per cent on the previous quarter but a rise of 6.3 per cent on the same period last year.

Jeremy Oddie, North West chair of R3 and head of recovery at accountants Mitchell Charlesworth, said: “The number of administrations is flattening off but is still higher than 12 months ago. This, together with the latest 0.5% growth figures, suggest that it will be a slow, sluggish recovery that is likely to take between three and five years.

“Insolvency numbers remain low compared to the levels after previous recessions, partly because the value of business assets is too low for creditors to pursue – they simply will not cover the debts they are owed. Consequently businesses are being allowed to stay afloat. When we see a period of sustained growth, creditors are likely to become more aggressive.

“R3’s Business Distress Index revealed nearly one in three North West businesses had suffered a drop in sales and almost two in three were seeing decreased profits. While this may not be enough to push businesses over the edge, a prolonged period of distress will trigger an increase in formal insolvencies.”

Pressure on the property sector
The figures also show the number of receiverships has been rising for four consecutive quarters to stand at 374 – 7.2 per cent higher than a year ago.

Jeremy Oddie adds: “Receivership is a process now almost exclusively used in cases involving property businesses. The vast majority of these will be companies or individuals with a property portfolio who have defaulted on their mortgage repayments.

“The figures reflect the intense pressure on landlords, particularly those with retail properties. Many of them will have borrowed money some time ago when interest rates were higher. Not only are they paying over the odds, they are also facing the loss of rental income as tenant companies collapse or properties are left standing empty.”

Personal insolvency decreases
In total, personal insolvencies decreased to 30,219 – down 11 per cent on last year, although within that, the number of IVAs and DROs which are alternatives to bankruptcy, have increased slightly.

Jeremy Oddie adds: “It is encouraging that personal insolvency has decreased following the peak in early 2010 but it would be unwise to rule out further increases to come. These figures do not give us the full picture as it does not show the numbers in debt management plans, nor the number of individuals struggling without help.

“If inflation continues to rise and wages remain stagnant we may see a rise in personal insolvencies. Higher energy prices are likely to bite in the coming months and Christmas will be another crunch time for households.”

R3’s latest Business Distress Index shows that talk of a business-led recovery is premature. It reveals that 79 per cent of businesses in the region are showing at least one sign of distress – the highest levels since the end of last year.

Overall, businesses in the North West – along with those in Yorkshire and the North East – fared worse than those in the rest of the country. Sixty-one per cent per cent of North West businesses reported decreased profits, whilst 29 per cent said they were experiencing falling sales. However only five per cent reported cash flow problems or difficulty in paying suppliers, while nine per cent said they were using their maximum overdraft facility fairly frequently – in each case, less than half of the national average.

Jeremy Oddie, chair of R3 in the North West and head of recoveries at Mitchell Charlesworth, said: “Business distress levels have been falling during the first two quarters but it’s clear that things have now taken a turn for the worse. This worrying trend mirrors the slowdown in GDP growth last quarter.

“Businesses are not out of the woods yet. While current stresses might not be enough to push them over the edge, prolonged periods of distress will trigger an increase in formal insolvencies. The first few years after a recession are traditionally difficult for businesses, as they need time to rebuild their reserves to support expansion.”

On the other hand the research, carried out during September, found some positive signs of growth. Thirteen per cent of businesses in the region said they had recently increased turnover and 10 per cent had increased profits. Other key indicators of health remained low, with only three per cent having increased export orders and only two per cent having increased their workforce.

Jeremy added: “The private sector has some way to go before it can deliver the kind of expansion the Government yearns for to drive the economy forwards. While there are some encouraging signs, important measures such as increasing exports and increasing employment register poorly.”

Turquoise PR can help you to achieve regular media coverage to raise your profile and profitability and ultimately increase the value of your business. Our services range from traditional media relations and online PR to copywriting, publications, website management and monitoring.