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There sadly isn’t a lack of indicators of the exceedingly challenging situation for many small businesses in the UK – and beyond – at the moment. Sure enough, another one has emerged, with it being reported that small and medium-sized enterprises (SMEs) are experiencing corporate distress at levels not seen since the middle of 2020.
That period, of course, is well-remembered on account of the considerable difficulties SMEs were suffering back then as the COVID-19 crisis hit Europe with full force.
The current predicament for many such firms is somewhat different, with the UK economy as a whole barely registering growth, and climbing interest rates putting ever-greater pressure on liquidity.
However, there won’t be too much shock at the news that – according to data put together by a law firm, and reported by Yahoo! Finance – SMEs’ corporate distress levels across the UK and Europe reached their highest level since mid-2020 in the three months to May 2023.
“Smaller corporates are the first to feel the strain”
The law firm in question is Weil, Gotshal & Manges. And Andrew Wilkinson – who co-helms Weil’s London Restructuring practice – said: “It should come as no surprise that smaller corporates are the first to feel the strain.”
He further explained: “Whereas large companies have the scale to access deep pools of capital, diversify their funding and hedge exposures, smaller corporates have fewer options. They also lack the pricing power of larger corporates in an inflationary environment.”
The Yahoo! Finance report stated that the study’s broader corporate distress index – in which large companies are also included – eased slightly compared to the situation in February, thereby underlining Mr Wilkinson’s point about smaller firms particularly struggling.
For the purposes of the report, corporate distress was defined as including uncertainty about corporate financial health and ability to service debts.
And there was further bad news for many businesses, such as those making use of our own accountancy services in Newton Abbot here at TS Partners: the UK was found to be the most distressed country.
This had much to do with Britain’s lethal combination of persistently high inflation and aggressive increases in interest rates, which equated to a 4.8 distressed level, compared to an average of 3.9 for the overall index.
On a sector-by-sector basis, meanwhile, it was real estate that recorded the highest level of distress for the second quarter in a row. However, there was also concern about distress in the financial sector.
Talk to the TS Partners team about how we can assist your business’s efforts to survive and thrive
Amid such a cocktail of adverse factors, it has rarely been so important for UK businesses to take every possible step to protect themselves against risks to their survival and growth.
The good news is that our own professionals can provide accountancy services in Newton Abbot, Plymouth, or Wellington that can help give your organisation the best chance of thriving in difficult times. To learn more about our wide-ranging and in-depth solutions and expertise, please don’t wait any longer to enquire to your nearest TS Partners office.
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