East of England business start-ups increase, but threat of insolvency rises – R3 Eastern report
In the face of a mixed financial and economic outlook, the East of England entrepreneurial spirit appears not to have been dampened. Latest statistics from insolvency and restructuring trade body R3 highlight a net quarterly increase of around 5,000 East of England firms since the beginning of May, with the total number rising from just over 346,000 to just over 351,000 at the start of September.
R3 warns, however, that all businesses should be aware of a growing threat as the proportion of Eastern region businesses at heightened risk of insolvency has increased over the same time period from 42% to 44.7%, equating to a rise of more than 11,500 local firms.
Commenting on the figures, which are compiled using Bureau Van Dijk’s Fame database, R3 Eastern Chair Mark Upton said: “It is encouraging to see such entrepreneurial drive in the region, particularly as the economic climate remains so challenging. However, with the increase in companies at greater risk of insolvency, there is stronger emphasis on owners and managers to remain aware of potential issues and act swiftly on them.”
This is backed up by further R3 research which indicates that one fifth (20%) of East of England companies has suffered a financial hit following the insolvency of a customer, supplier or debtor in the last six months. The report found the financial impact of the insolvency of another business was described as “very negative” by 7% of the region’s companies, and as “somewhat negative” by 13% of local respondents.
Mark Upton, who is also a partner at Ensors Chartered Accountants in East Anglia, continued: “The figures are evidence of the so-called ‘domino effect’, where one company’s insolvency will increase the insolvency risk for others. They follow a national 13% rise in underlying insolvencies in the first three months of this year compared to the previous quarter, and a spate of high profile insolvencies involving large companies such as Carillion and Toys R Us.
“No business exists in isolation, and every headline-grabbing corporate insolvency will have consequences for numerous other enterprises. After the news of the Carillion liquidation broke, for example, our local members reported an immediate upsurge in requests for advice from companies with links to Carillion. In the retail sector, we witnessed the recent string of High Street administrations causing less visible struggles at other firms, such as suppliers and service providers.”
Mark Upton added that the problems caused by the domino effect are generally ones that businesses are able to overcome with foresight and planning, albeit with a possible hit to future turnover and profitability.
He said: “Any smart business knows it needs to mitigate risks due to insolvency in its supply chain or its customers through active monitoring of partners’ credit profiles, diversification where possible to spread risk, and through building strong relationships which can provide support when a major counterparty hits a rough patch.
“If your business hears that a partner is in financial distress or is insolvent, calculate your potential exposure and seek expert advice immediately. You could also look to the possible upsides: could buying the distressed business help your own business? Can you pick up any new contracts or customers? Counterparty insolvency is likely to affect every business out there at some point so prepare as best you can, with a contingency plan in place.”