Risk of businesses in the South East ‘going under’ drops as economy moves from rescue to recovery

Around 75 per cent of businesses in the region’s 10 key economic sectors have seen their risk of entering into insolvency procedures recede over the last 12 months, according to research from R3, the insolvency trade body.

Some three quarters of the businesses that make up the mainstay of the South East’s economy are today more financially secure than they were this time last year.

Local insolvency experts, from R3’s Southern Committee have heralded it “positive” news and further proof that the UK is in recovery, but are warning businesses not to become too complacent.

Transport and storage businesses in the South East are the most improved, with 75.65% of companies within the sector, which includes taxi firms, bus companies, warehouses and logistics operators, seeing their risk of insolvency fall.

There was very little between the top 10 sectors, with those at the bottom of the list, manufacturing and construction, still scoring a respectable 72.33% and 71.03% respectively.

James Stares, chairman of R3’s Southern Committee and director at Grant Thornton in Southampton, welcomed the figures, commenting: “These figures are very encouraging for the South East and give an upbeat snapshot of the region’s finances, which look to be recovering after some difficult years. What is promising is that even the least improved sector of the 10 has seen its risk of insolvency drop by 71.03%.

R3 compiled the data using BVD’s Fame Database of company information. Companies in the Fame database are awarded a score based on their likelihood of insolvency in the next year. This score is based on factors such as turnover, pre-tax profit, working capital, cash and bank deposits and other factors. A high score indicates a low risk of insolvency in the next year, and vice versa.

The research took the top ten sectors (by employees) in each UK region and measured the number of businesses in each sector whose score had risen from last year (i.e. become more financially secure) and the number of businesses whose score had fallen (i.e. become less financially secure).

James’ comments echo other recent research by R3, which shows that more than half of businesses in the South East agree with the Chancellor’s statement that the economy has moved “from rescue to recovery”.

James concluded: “An improving economy should see these risks of insolvency figures continue to get better, but it is important to avoid complacency. The early stages of an economic recovery can be difficult as there is the danger that a business expands faster that it can support. Business owners need to be patient and make sure they walk before they try to run.”