Life has been challenging for businesses for several years now. Brexit and the Covid pandemic were joined by global conflict in pushing up prices, for businesses as well as consumers. And that only looks likely to get worse, with the effects of October’s Budget and punitive tariffs being imposed by the USA.
Two recent reports have highlighted the extent of the problems facing UK businesses.
Profit Warnings in 2024
A recent report found that 19% of listed companies in the UK issued a profit warning in 2024. This is the third highest proportion on record, behind the pandemic in 2020 and economic and global woes in 2001.
The problems seem to be across the board where sectors are concerned, although some are particularly hard hit — Industrial Support Services, Software and Computer Services, and Retailers. The two biggest reasons given were rising costs and cancellation or delay in contracts and orders.
“The availability of cheap, long-term debt and pandemic support,” pointed out EY-Parthenon Partner Jo Robinson, “provided breathing space for both businesses and stakeholders to explore consensual solutions and new restructuring options. However, more companies are now reaching a tipping point as cumulative pressures build.”
Financial Distress for Firms Increasing
Separately, it’s been reported that the final quarter of 2024 showed a record surge in businesses entering critical financial distress. Numbers rose by 50.2% to 46,853 companies reporting serious problems, most seriously the hospitality, leisure, construction, property and retail sectors.
This situation seems unlikely to improve in 2025. Consumers spent very frugally over the Christmas period, and the challenges of the new year, such as the increases in minimum wage and employer national insurance contributions, could push many businesses over the edge.
Ric Traynor, Executive Chairman of Begbies Traynor, suggested, “For many of these companies [labour-intensive sectors like retail and hospitality], the situation is dire, and this additional burden will almost certainly result in business leaders taking the decision to, at best, reduce headcount or, worse, wind down their operations in the face of insurmountable challenges.”
How Will This Affect You?
As a small business owner, this has to be of concern. Even if your business is in a strong enough financial state to weather this storm, the general economic problems could have a knock-on effect, whether that’s trading partners scaling down (or even disappearing) or customers struggling to pay what they owe you.
Dealing with debtors who are genuinely struggling can take sensitivity and negotiating skills. The object is often to help them get back to a point where they can pay what they owe you, and hopefully continue to be valuable customers.
Give me a call to find out more about how I can give you the best chance of getting the outstanding money you’re owed.
