Begbies Traynor : Latest Red Flag Alert Report for Q4 2016

30 January 2017

FINANCIAL DISTRESS EDGES UP AS ECONOMY PREPARES FOR AN UNCERTAIN YEAR AHEAD

276,518 UK businesses finished 2016 in a state of 'Significant' financial distress, 91% being SMEs

New research from Begbies Traynor, the UK's leading independent business recovery practice,shows that more than 275,000 companies were showing signs of 'significant' financial distress at the close of 2016, representing the thirteenth consecutive quarter that corporate stress has risen on a year on year basis.

According to Begbies Traynor's Red Flag Alert research for Q4 2016, which monitors the financial health of UK companies, 276,518 businesses were experiencing 'Significant' financial distress at the end of 2016; an increase of 3% compared to the same period last year (Q4 2015: 268,898 companies). On an annualised basis, the last time that 'Significant' distress fell year on year was in Q3 2013.

Of the companies experiencing financial distress during Q4 2016, 91% (254,857) were SMEs, indicating the scale of the problems faced by the UK's smallest businesses. Meanwhile, nearly a quarter (23%) of the country's struggling businesses were in London, where 64,764 companies finished the year in a state of 'Significant' financial distress; an increase of 5% on Q4 2015.

This rising distress comes at a time when the number of UK company incorporations is growing substantially, with more than 685,000 start-ups joining the economy during 2016 alone - the highest level since the start of the financial crisis in 2007. However, Begbies Traynor highlights that many of these start-ups are short lived 'lifestyle' businesses often forced upon people by changing circumstances, such as the loss of paid employment. For example, of the c.470,000 companies incorporated during 2011, almost 57% have since been dissolved, struck off or have entered formal insolvency procedures, and another 7.5% are not even trading.

Julie Palmer, Partner at Begbies Traynor, says:

'With the World Bank revising down its growth forecasts for the UK, alongside reports that the UK's trade deficit widened to a worse-than-expected £12.2bn in November, our data shows that levels of financial distress continue to rise across the country, most of all within the UK's important SME community, which is widely regarded as the lifeblood of the economy.

'The scale of SME distress at the end of 2016 just goes to highlight the fragility of UK micro businesses, many of which are underfunded, lack management experience or are flawed in concept. Although record numbers of new start-ups continue to join the economy each year, a large proportion don't stay in business for long, with growing numbers of aspiring entrepreneurs returning to more established businesses as soon as the opportunity arises.'

Ric Traynor, Executive Chairman of Begbies Traynor, added:

'Despite finishing the year in a state of heightened financial stress, it is too early to say that this is reflective of an underlying problem that is likely to continue or negatively impact 2017,as numerous macro indicators suggest that the New Year has got off to a reasonable start.

'EU exit negotiations and US trade policy could be major factors affecting business this year either for better or worse whilst rising inflation and fluctuating exchange rates are likely to have a negative impact. Either way 2017 could well be a defining year for UK business.'

- Ends-

For further information, contact:

MHP Communications

Katie Hunt / Giles Robinson / Hannah Winter / Kirsty Wilson / Peter Lambie

Tel: 0203 128 8788

Email: Begbiescorporate@mhpc.com

AboutRed Flag Alert

Red Flag Alert has been measuring and reporting corporate financial distress since 2004, and over that time has become an industry benchmark of the underlying health of companies across every sector and region of the UK.

Through its unique algorithm, the Red Flag Alert measures corporate distress signals, drawing on factual legal and financial data from a wide range of relevant sources, including intelligence from the UK's leading insolvency business, Begbies Traynor.

The release refers to the numbers of companies experiencing 'Significant' problems, which are those with minor CCJs (of less than £5k) filed against them or which have been identified by Red Flag's proprietary credit risk scoring system which screens companies for a sustained or marked deterioration in key financial ratios and indicators including those measuring working capital, contingent liabilities, retained profits and net worth.

Red Flag Alert is commercially available to all businesses, on an annual subscription basis, to help them better understand risk and exposure and help prepare them for the future. Further information about Red Flag Alert can be found at: www.redflagalert.com

About Begbies Traynor Group

Begbies Traynor Group plc operates from over 40 UK locations through two operating divisions:

Begbies Traynor is the UK's leading independent business recovery practice handling the largest number of corporate appointments, principally serving the mid-market and smaller companies. We provide a range of specialist professional services primarily to businesses, their professional advisors and the major banks covering insolvency, restructuring and risk management activities.

Eddisons is a leading UK firm of chartered surveyors, offering a wide range of specialist services to banks, insolvency practitioners, and owners and occupiers of commercial property. The core services offered are valuation and disposal of property including fixed charge property receiverships; valuation and disposal of machinery and business assets; auctions; insolvency insurance brokerage; property and facilities management; and building consultancy and ratings valuations.

Information on Begbies Traynor Group can be accessed via the Group's website at www.begbies-traynorgroup.com