March insolvency stats: Worrying increase in business closures
April 21, 2023
Shocking corporate insolvency figures for March just published by the Insolvency Service have revealed the magnitude of the problems faced by businesses up and down the UK as the ending of the government’s support scheme for energy costs on 1 April 2023 approached. The comparisons with past business failures figures is sobering: March 2023 was up 38% on the previous month, 16% on March 2022, 146% on March 2021, 99% on March 2020 and 55% up on pre-pandemic levels in March 2019.
Overall, March 2023 saw the highest number of insolvencies (2,457) in a single month for three years, driven by the continuing rise in business owners opting to close their companies through the Company Voluntary Liquidation (CVL) route. The CVL number (2,011) was also the highest monthly number for three years.
Battle weary entrepreneurs
Many of these closures are down to the unremitting pressure endured by business owners over the past three years. The collected pressures of the pandemic, Brexit, the Ukraine war and high inflation has devastated once robust business models, reduced profits and whittled morale.
Swollen borrowings leading to business closures
The debt burden across the UK economy, particularly among SMEs, rose sharply during the pandemic. The various government-backed loans schemes were taken up by over a third of all businesses, as 1.7m organisations borrowed a total of £79bn, according HM Treasury statistics. The overall borrowings of SMEs have more than doubled in the retail and hospitality sectors and by 60% in the construction industry. Sadly, the chickens are coming home to roost for businesses which have not managed to bounce back as hoped and are understandably struggling to service the interest or repay the capital on their loans.
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Input cost increases
The OBR may be predicting that consumer inflation will fall from its peak of 11.1% to 2.9% by the end of the year, but the cost surge for businesses will prove less straight forward to contain. The Producer Price Index published by the ONS showed the prices for goods and materials bought by manufacturers were up 12.7% year-on-year in February 2023 and wages increased by 6.6% year-on-year in March 2023. Neither are expected to shrink so quickly. Passing on this scale of cost pressure to end-consumers battling with the cost of living crisis and large falls in their living standards is extremely difficult and leads only to lower profit margins.
Energy costs increasing business closures
The most grievous pressures felt by many businesses, especially those in the hospitality and leisure sectors, is the rise in their energy costs, exacerbated by the Government’s withdrawal of energy support by 85%, or some £30bn, over the next twelve months. Although wholesale energy prices have tumbled in recent months, many companies were locked into fixed priced, fixed term contracts last year at the peak of the energy price crisis. Some estimates suggest that average energy bills have gone up by between two and three times as a result and by much more for the most unlucky business users.
Seeking advice – the earlier the better
Business owners and managers must be ever vigilant about signs of financial distress and seek advice as soon as they spot issues and start to worry about both their finances and their future prospects. Stock piling up, cash flow issues, or a business struggling to pay its rent, staff or suppliers are sure signs to seek professional advice while there are still positive options available.
If you are seeking professional advice for your business, Opus is here to help. You can speak to one of our Partners who can discuss options with you. We have offices nationwide and by contacting us on 020 3326 6454, you will be able to get immediate assistance from our Partner-led team.