Almost 4,000 UK companies ceased trading in the first three months of 2017, according to a new study, with business insolvencies rising dramatically in a number of sectors.
The research, by insolvency practitioners Hudson Weir, showed a 4.5 per cent increase in the number of business insolvencies between the final quarter of 2016 and the first quarter of 2017.
Looking at which sectors experienced the most business insolvencies, construction and retail businesses had been the most vulnerable since the start of the year.
In fact, 16.4 per cent of all liquidations came within the construction sector, while the retail food and drinks industries accounted for 13.2 per cent. The hospitality sector accounted for 11.2 per cent of the overall figure.
Insolvency experts at Hudson Weir attributed several reasons driving the rise in liquidations, from unrealistic business planning to fraud. However, poor cash flow and financial insecurity were found to be the common links between business insolvencies.
Commenting on the current conditions for small business owners, Hasib Howlader, director at Hudson Weir, likened the uncertainty of the current political and economic climate to that of the Second World War.
“It’s no surprise that certain industries have been hit – construction is bound to suffer because people have less of an appetite for risk than before,” he explained.
“Retail is also bound to suffer because we are still feeling the effects of Brexit and the associated exchange rate movements – many imported goods are now significantly more expensive than they were.
“It sounds obvious but we’d recommend not borrowing unnecessarily. Also, as and when you are in a position to hire, it’s crucial you get it right.”
Some sectors managed to dodge any effect of economic insecurity – accountants constituted just 0.6 per cent of the total insolvency figure. Financial services companies also demonstrated resilience, accounting for 5.8 per cent of all liquidated firms.
Howlader warned owners of the “hidden costs” of running a business that are often underestimated and significantly damage the health of the company.
“People always underestimate how much a bad hire can cost in lost wages, training time, recruiters’ fees, severance packages and even tribunals,” he added.
Meanwhile, a further study revealed the threat posed to small firms by a potential interest rates hike.
Research from R3, the UK’s insolvency and restructuring trade body, suggested as many as one in 25 companies – around 80,000 firms – would be unable to repay debts if the current base rate of 0.25 per cent saw even a slight increase.
Use these seven tips to keep your cash flow positive and grow your company
Sign up to our newsletter to get the latest from Business Advice.