Business insolvency figures can provide a valuable clue as to the state of the economy, but the picture isn’t always straightforward. Over the past few years, in particular, figures have sometimes been skewed by the effects of the pandemic. Many failing businesses were artificially propped up by government support, pushing the figures up when they finally entered insolvency.
The figures for July 2024 have been released, and they offer very mixed messages.
Insolvencies in July
The good news is that insolvencies for July are 7.3% lower than for June. However, when compared with July 2023, insolvencies have risen by 15.9% in England and Wales, 21% in Scotland, and a massive 54% in Northern Ireland.
As far as England and Wales are concerned, there were a total of 2,191 business insolvencies in July. 1,691 of these were creditors’ voluntary liquidations (CVLs), where the company mutually agrees with its creditors to wind up the business. The rest included administrations and company voluntary arrangements (CVAs), but there were also 320 compulsory liquidations — the highest since before the pandemic.
The Good and Bad in the Figures
Clearly, the rise in business insolvencies since last year is highly worrying. Referring to the increase in CVLs, Tim Cooper, President of R3, the UK’s insolvency trade body, commented, “These processes are used predominantly by smaller businesses and their increased take-up…reflects the challenging trading conditions these businesses have operated in over the past four years.”
However, it isn’t all bad. Tim Cooper also points out that, “the rise in administration numbers compared to last year is potentially positive for business rescue prospects…The improved economic and business climate should also result in greater acceptance and success of rescue proposals”.
What Can You Do to Safeguard Your Business?
If you own a small business, these figures are likely to be worrying. There are certainly signs that the economic situation is improving, especially if you’re in retail, hospitality or construction, but the question is whether it will improve quickly enough to benefit you.
According to Chris Tate, Partner at Azets, “Typically, poor cashflow management is the biggest killer and many businesses are simply not forecasting future cashflow or acting quickly enough at the first signs of distress.”
I’d certainly recommend any business owner to get advice as soon as possible, if there are signs you’re heading into trouble. The best solution of all, though, is to keep your cashflow healthy by ensuring your invoices are paid promptly. If you want help with that, give me a call to find out how I can help you avoid becoming part of the insolvency statistics.
