Is Your SME Suffering From Significant ‘Financial Distress’?

Ask any accountant and they will tell you that one of the biggest problems facing many SMEs at the moment is raising finance.

Now you may find that surprising considering that the economy is starting to show clear signs of improvement. But the fact is raising finance still remains problematical.

We know this is the case because our accountants help to deal with SMEs who are facing this very problem – that is, struggling to raise capital. If you’re still not convinced that this is a significant problem then have a read of the latest report by Begbies Traynor. The Q1 2014 Red Flag Alert found that almost 250,000 UK SMEs are still facing significant financial distress despite the improving economic climate. What’s more, the report suggests that many SMEs are in danger of being left behind as the national economic recovery accelerates, due to limited access to funding, new risk of over-trading and increased competition in the marketplace.

So what are the findings of this Q1 Red Flag Alert?

Well, there is apparently a 22% year-on-year increase in the number of small firms dealing with ‘significant’ financial distress. These figures stand in stark contrast to the experiences of larger companies which have experienced a 14 per cent decline in financial distress levels over the same period. Why should this be so concerning for the overall economy? Well, because the problem appears to be becoming more and more serious. SMEs now account for 92% of the UK’s businesses. What’s more, 207,505 of the total 225,549 SMEs claim to be experiencing significant financial issues, compared to 169,800 at the end of Q1 2013.

Speaking about the latest report, Julie Palmer, partner at Begbies Traynor Group, explained that SMEs in consumer-facing sectors have fared worst in the last 12 months, while the number of general retailers in ‘significant’ financial difficulty increased by 16 per cent year-on-year to 13,130 – 97% of which are classed as small firms:

“Larger firms across the economy, who have easy access to bank finance and years of experience on their side, have been able to take full advantage of the economic resurgence through measures such as extensive discounting, capacity expansion and increased marketing. However, as the recent Government consultation into SME financing shows, smaller businesses are far too often coming up against a brick wall when trying to secure vital funding for growth.”

Ms Palmer added that information gaps and working capital shortages are affecting SMEs the most, with an upward trend in small business distress anticipated in 2014 unless something is done:

“As the Red Flag analysis has identified in previous quarters, increasing order intake driven by the rebounding economy actually exacerbates this problem, as businesses run into working capital shortages caused by overtrading.”

“The information gap between the banks and small businesses means that many SMEs are unaware of how to access alternative financing such as peer group lending and venture capital. Unless this is addressed soon we expect this upwards trend in SME distress to continue through 2014.”

If your SME is having difficulty raising finance, or would like expert help and advice on business planning, raising funding or identifying the most-suitable sources of finance, then why not speak to Steven Glicher’s accountants? For further information call Steven Glicher on 0161 405 8007

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