Small firms facing tougher times

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Smaller firms in Yorkshire are facing tougher times, while bigger companies are on the road to recovery, according to Begbies Traynor.

The accountants latest Red Flag Alert report shows there has been a 17 per cent rise in small and medium sized firms in the region that are showing signs of significant financial distress – having County Court Judgements made against them or suffering a deterioration in key financial ratios.

SMEs in Yorkshire fared worse than the rest of the country, where there was an 11 per cent increase in SME distress levels.

Meanwhile, bigger companies saw a 61 per cent fall in distress levels in Yorkshire and across the rest of the country.

“These figures reveal that an increasing number of SMEs in Yorkshire, and in the UK as a whole, are bearing the brunt of the current challenging credit and trading conditions,” said Begbies Traynor Sheffield-based partner, Adrian Graham.

“Meanwhile, larger companies are able to exert pressure on SMEs by enforcing lengthier payment terms on smaller suppliers. Added to the heavy impact of high energy prices and the limited availability of funding support, these factors are combining to create a perfect storm for smaller businesses in Yorkshire.”

Mr Graham believes the outlook for many SMEs is poor.

Some are ‘zombie businesses’ – only able to generate enough cash to pay the interest on their debts and keep their creditors at bay.

“While many of these SMEs may survive in a climate of low interest rates and creditor forbearance, they are in no position to deal with unexpected costs, lost orders or bad debts, or to fund increases in working capital and invest in growth,” says Mr Graham.

“At a time when hopes for a UK recovery are pinned on the private sector delivering growth and investment, it’s clear the government needs to act quickly to ensure credit conditions for SMEs are improved or risk choking off a recovery before it really gets started.”

Across the UK as a whole, Begbies Traynor’s research revealed an economically divided nation, with businesses based in the North suffering significantly higher levels of business distress than those in the South.