Small and Medium-Sized Firms ‘Being Left Behind’

New research shows increase in number of SMEs suffering significant financial distress

More than 200,000 small and medium-sized enterprises are in ‘significant’ financial distress, despite the improving economic climate, according to research from business recovery experts Begbies Traynor.

That number is a 22% increase compared with the equivalent period last year, in contrast to the 14% decline in distress levels suffered by larger firms.

These findings, from the Q1 2014 Red Flag Alert, indicate that smaller firms are being left behind as the UK recovery accelerates. The biggest drags on growth are limited access to funding, the risk of over-trading, and increased competition, the research suggests.

The worst performing smaller businesses are in the consumer-facing industries such as retail, bars and restaurants. Partner at Begbies Traynor Group Julie Palmer said that smaller firms are ‘…simply unable to compete with the buying power of larger chains and have struggled to match the discounts offered by bigger competitors seeking to maintain market share’.

SMEs now account for 92% of UK businesses facing significant financial distress, compared to the end of Q1 2013, when SMEs represented 89% of all businesses at ‘significant’ risk.

Julie Palmer, Partner at Begbies Traynor Group, said:

“Larger firms across the economy who have easy access to bank finance and years of experience on their side, have been able to take full advantage of the economic resurgence through measures such as extensive discounting, capacity expansion and increased marketing.However, as the recent Government consultation into SME financing shows, smaller businesses are far too often coming up against a brick wall when trying to secure vital funding for growth.

“As the Red Flag analysis has identified in previous quarters, increasing order intake driven by the rebounding economy actually exacerbates this problem, as businesses run into working capital shortages caused by overtrading. The information gap between the banks and small businesses means that many SMEs are unaware of how to access alternative financing such as peer group lending and venture capital. Unless this is addressed soon we expect this upwards trend in SME distress to continue through 2014.”

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