SMEs ‘showing most danger signs’

Small and medium enterprises (SMEs) are showing more signs of being in difficulty than larger companies, a new report has indicated.

Smaller firms are likelier to need insolvency advice than bigger ones due to lower sales and profits, a study by insolvency professionals' body R3 has revealed.

Its latest research has shown that over the past year, 29 per cent of SMEs have seen sales volumes fall, compared with just six per cent of larger businesses.

And in addition to this, 34 per cent of smaller firms have seen profits fall, compared with 19 per cent of larger enterprises.

One interesting finding is that the overall number of businesses showing signs of distress (58 per cent) is ten per cent down on December 2010. However, R3 president Frances Coulson said this is no cause for rejoicing.

She remarked: "Could this be the calm before the storm? Many 'zombie' businesses have been surviving but not thriving and we know that businesses do not fail in the middle of a recession, but when the economy is recovering.

"The 'insolvency lag' we have seen in previous recessions is slower to materialise this time around, and traditionally insolvencies increase during the recovery phase."

Firms who are restructured through the help of administration services may find they are sold on to competitors who have fared better due to modern trading methods, such as using the internet to sell their goods and services.

R3' study revealed that 39 per cent of firms who do not take online payments have seen profits fall, compared with 25 per cent of those whose wares are available on the web.

Speaking recently in the BBC's On the Money podcast, former Bank of England monetary policy committee member Dr Andrew Sentance said: "Online spending is increasing very strongly" and noted that this has caused major problems for companies who have not managed to keep up with such developments like outdoor goods retailer Blacks, who recently went into administration before its assets were sold to JD Sports in a pre-pack deal.