Economy escalates businesses in critical financial distress

The number of businesses in critical financial distress rose by 24 per cent in 2011, according to a Red Flag Alert report from Begbies Traynor.

The increase in financial distress crosses several key sectors according to the report, but one of the largest rises of 56 per cent was seen in Travel and Tourism. In fact, Begbies Traynor expects the failure of at least one ‘household’ name travel company during the next quarter.

Other sectors heavily affected include professional services, general retailing, construction, automotive, and property services.

According to the report, 2011 was a relatively soft period for business failure, compared with previous recessions, but firms across key sectors face their toughest times so far in the coming quarters.

Commenting, Ric Traynor, executive chairman of Begbies Traynor Group, said: “Trends evident in the Red Flag Alert demonstrate that we are likely to be approaching a crucial period for businesses large and small. Escalating levels of distress indicate we may be getting close to the bottom of the economic cycle, where so called ‘zombie” businesses, which are inherently insolvent, but have benefited from extensive support measures such as HMRC’s ‘Time to Pay’ scheme eventually fail.”

Commenting on the impact on travel and tourism, Julie Palmer, partner at Begbies Traynor, said: “The broad spread of distress reaches across just about every sector, but there are ‘hot spots’ such as the travel & tourism and professional services sectors.

“The travel and tourism industry was hit hard in 2011 and there appears no respite in sight. The first quarter of the year, typically the travel/tourism sector’s main booking season, is a vital period when companies can take in much-needed deposits and this quarter is going to be particularly critical for many of them.

“With household disposable income under so much pressure, and job security at an all time low we believe that booking volumes will fall and this in turn will result in some travel and tourism household name failures during the next quarter.”

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