Companies hit as confidence falls

Retailer Past Times is closing some of its branches as part of a turnaround plan

An increasing number of UK firms are showing signs of financial distress, a report suggests.

Corporate recovery experts Begbies Traynor have released their Red Flag Alert, which monitors a series of indicators of company cash woes.

And they say 186,554 firms experienced “significant” or “critical” financial distress in the first quarter of 2011, compared to 161,601 a year earlier.

Begbies said there had been problems in the leisure sector in particular.

The 15% rise in firms facing financial troubles was partly down to members of the public cutting discretionary spending, in the face of anticipated job losses.

The worst hit sector was in bars and restuarants, where firms facing difficult monetary issues had risen by 68% on the first quarter of 2010.

Meanwhile the leisure and culture, and sport and recreation sectors were faced a 60% and 23% rise respectively in firms facing tricky times compared to 12 months previously.

Professional services was another area hard hit, seeing a 61% hike in firms in trouble.

The Red Flag Alert report pointed out that a significant number of public sector staff “will have received formal notification of impending redundancies which will have had an impact on discretionary consumer spending”.

Begbies Traynor Group boss Ric Traynor said it seems likely that a fall in consumer confidence and spending power driven by those anticipated job losses, was at the core of the leisure sectors problems.

“Over 15,000 firms in the professional services sector are showing signs of significant or critical problems – partly driven by a stale property and corporate deals market – often the drivers for an active professional services community,” Mr Traynor said.

He said it appeared firms which operated with a high fixed cost base were finding the current market conditions increasingly difficult “as their revenues fail to recover and the scope for further cost reductions becomes more limited”.

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