Number of Businesses closing is on the rise
The number of businesses closing saw a further increase in the second quarter of 2023 (Q2). The rate of business insolvencies is now at its highest rate since 2009 according to latest statistics.
These new figures are “highly concerning” says John Cullen, business recovery partner at Menzies LLP.
Released by the UK government on July 28, insolvency statistics showed there were 6,342 recorded company insolvencies in Q2. This reflected a 9% increase compared to the number of insolvencies in Q1, and a 13% increase compared to the second quarter of 2022.
Large rise in insolvencies
“The large rise in total insolvencies is not surprising as 83% of them relate to small businesses entering into a liquidation process where directors of these companies have decided that they have exhausted all recovery options and have no alternative but to cease trading,” says Lindsey Cooper, partner at RSM UK.
“Many of these businesses have high levels of debt on their balance sheets and little or no reserves. They have managed to hold on up until now with the help of the Covid support measures,” she added.
This was echoed by Marieta van Straaten, legal director of the restructuring and insolvency team at Kingsley Napley LLP, who says many businesses are still recovering from the pandemic.
Firms struggling to survive
Additionally, with low consumer confidence, many firms are now struggling to survive hence the rise in businesses closing.
Businesses are not only grappling with financial pressures but also contending with talent shortages and longer delays in sourcing goods, which are significantly impacting their operations, Menzies’ Cullen states.
Worsening late payment rates are also fueling the fires of Small Business insolvency. Many are still failing to act on unpaid invoices and take debt collection action.
Businesses waiting for interest rates to fall
Recently the EY ITEM Club reported the UK economy’s growth has been hindered by rising interest rates, and the Bank of England attempts to tame inflation.
However, inflationary pressures show no signs of abetting and Cooper believes that businesses which once enjoyed the advantages of inexpensive loans and operated with slim profit margins are now confronting substantial challenges.
This is particularly the case when attempting to renew bank facilities or refinance their existing debt, he says.