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North East business distress falls dramatically

Business distress has fallen significantly in the North East, but the region still has a way to go before it fully recovers from the effects of the recession.

57% on firms in the North of England were suffering one or more signs of business distress, 1% lower than the national average, and significantly less than Greater London and the South East, who registered 66% and 63% respectively.

Despite this, less than a quarter of firms saw an increase in turnover during the last quarter, and almost 30% had seen turnover fall during the same period. Just over a fifth of businesses have plans for expansion.

Linda Farish, chair of the north east arm of insolvency trade body R3, and director of Recovery & Insolvency at Newcastle-based accountants RMT, says: “Whilst there are still many hurdles for businesses in our region to face as the recovery from recession continues, a few significant positives have come out of our latest Business Distress Index and we hope that the trend continues through 2012.

“We are concerned, however, that could this be the calm before the storm - many ‘zombie’ businesses have been surviving but not thriving, and history tells us that that the greatest number of businesses do not fail in the middle of a recession, but instead when the economy is recovering.”

Businesses in the region reporting a growth in domestic orders and a greater makert share were both the highest at the country - 20% and 24% respectively. Few businesses were also found to be experiencing cash flow difficulties in the North East.

She continued: “The ‘insolvency lag’ we have seen in previous recessions has been slower to materialise this time around, and traditionally insolvencies increase during the recovery phase, when a company’s financial outlook starts to improve and creditors therefore stand to achieve greater returns than they would during the downturn.

“Changes in policies of lenders and the Government could force ‘a clear out of the system’ in 2012, and company owners and executives still clearly need to be very much on their guard for signs of distress within their businesses throughout the year to come.”

This was posted in Bdaily's Members' News section by Ruth Mitchell .