Insolvency trade body: UK firms still struggling

While the UK is slowly recording some growth in its economy, a great number of businesses are still at risk of requiring insolvency practitioners to step in and assist them in getting out of their financial dire straits.

According to insolvency trade body R3, bosses should not be fooled by the recent figures showing a 0.5 per cent increase in GDP.

While this news of modest growth is obviously good for the country as a whole, firms cannot afford to become complacent or they could find themselves issued with a winding up order.

The organisation's own figures showed that just a fifth (21 per cent) of companies are actually recording growth, with the remaining 79 per cent either stagnating or shrinking.

President Frances Coulson warned that the GDP figures might actually belay the truth for many of the country's small and medium enterprises, who are still up against it in terms of turning a profit.

"Today's GDP figures, while travelling in the right direction, run contrary to what is happening on the ground, with most businesses not reporting signs of growth," she said.

The expert added that prolonged periods of stagnation are a real risk factor for firms to require insolvency advice and even formally enter administration.

Ms Coulson pointed to R3's own recent research as an example of how British companies are struggling in 2011.

The Business Distress Index, released last month, showed an increase in the number of firms relying on their maximum overdraft, while fewer firms are reporting a profit.

"I would worry that some businesses are not sufficiently rebuilding their reserves to support expansion, whenever that comes, and these signs of distress are likely to remain despite today's increase in GDP," the insolvency advice specialist added.

The Business Distress Index also showed that 17 per cent of firms are experiencing difficulties paying invoices – a symptom of financial problems.