Firms that rely on discretionary spending ‘at risk of needing insolvency advice’

Firms that rely on discretionary spending are among the most likely to require business recovery services and insolvency advice, it has been suggested.

According to R3, otherwise known as the Association of Business Recovery Professionals, such companies are prime candidates for financial difficulties in times of economic hardship, such as those seen in the aftermath of the credit crunch and fiscal downturn.

President Frances Coulson explained that altered spending patterns put such enterprises at risk, which could lead to some requiring bankruptcy advice.

"Sectors reliant on discretionary spend are always likely to suffer as people adjust to [a] struggling economic outlook and prioritise their expenditure," she said.

The expert noted that an R3 survey conducted earlier this year found that 51 per cent out of a total of 2,052 UK adults had bought fewer non-essential items in the past 12 months.

In total, 84 per cent of respondents had responded to economic pressures by adjusting their spending in some form.

Ms Coulson speculated that fear of redundancy might play a key role in the lack of discretionary spending, with one in ten Brits telling the organisation that they were worried about job security in their current role.

Recent research from Experian showed that there was an increase in business insolvency in July 2011, with small and medium-sized firms particularly hard hit.

The data revealed that 0.1 per cent of all UK companies failed in July 2011, although this was down year-on-year when 0.8 per cent of British enterprises had to seek insolvency advice.

"R3 is calling on the government to improve the UK's rescue culture to help more businesses survive," Ms Coulson said.

"We have launched a 'Holding Rescue to Ransom' campaign to prevent suppliers demanding ransom payments in insolvency."