Heightened insolvency risk for East Midlands firms
Nearly 44% of firms in the East Midlands are deemed to be at heightened risk of insolvency, according to new figures from R3.
The insolvency and restructuring trade body has revealed that an additional 6,500 firms in the region are now deemed to be at risk when compared to the start of May.
Some 43.7% of businesses have displayed at least one sign of business distress of late, meaning more than 200,000 firms could be at risk.
Chris Radford, chair of R3 Midlands’ branch, has called on directors and business owners to remain watchful, and to take action swiftly when it is appropriate.
According to figures from R3, compiled using Bureau van Dijk’s Fame database, 22% of firms in the East Midlands have taken a financial hit following an insolvency in their supply chain within the last six months.
The knock‐on effects of customer, supplier or debtor issues is known as a ‘domino effect’ and 5% of those businesses affected said the insolvency of another had a “very negative impact” on their operations.
While the other 17% of firms said they were only somewhat negatively affected, the figures still highlight the unexpected problems that a business can encounter at very short notice.
As the insolvency of one firms increases the risk for others, businesses may wish to consider contingency planning to reduce the perceived levels of risk involved.
Alternatively, they may wish to undertake an independent business review to highlight methods of streamlining operations and to strategize for a more financially secure future.
With foresight and planning, the majority of issues relating to the domino effect can be limited, although future turnover and profits can take a hit.
Businesses need to monitor the credit profiles of business customers in order to mitigate potential risks and should understand any potential exposure should a supplier enter into insolvency.
By Phil Smith