Optimism returning to North East's businesses

New research has shown that a sense of optimism is creeping into the region’s economic outlook despite continuing challenging conditions.

Insolvency trade body R3’s latest Business Distress Index has shown substantial year-on-year falls in signs of distress amongst firms in the north.

The Business Distress Index (BDI), showed that the proportion of firms in the north east, Yorkshire and Humberside reporting decreased profits had fallen by almost a half, just 24% compared with 49% in spring 2012.

Moreover, the research also found that only 6% of these businesses were currently maxing out their overdraft regularly, compared to 25% this time last year.

Only eight per cent of firms said they’d lost market share this year, compared to 27% at this point in 2012.

And although 28% said they’d seen a reduction in sales volume, this figure is more positive than the 37% in that position 12 months ago.

The percentage of regional businesses that had been able to invest in new equipment has grown from 14% to 26%.

23% had grown market share recently compared with just 14% last year and 25% had, an increase from the 15% of 2012.

Over a third of businesses, 34%, noted the rising costs of fuel and utilities as the biggest problem facing regional businesses with a reduction in consumer spending affecting demand coming in second with 27%>

Only 5% of those surveyed identified an inability to secure further credit or a bank loan as their key problem.

Steve Ross, chair of R3 in the north east and a partner in the Restructuring department of the Sunderland office of accountancy firm RSM Tenon, said:“After such a prolonged period of economic gloom, good news such as this will be welcomed with open arms, as will any easing of pressure it leads to inside individual firms, but looking at the wider picture, business growth is still very hesitant.

“Decreasing numbers of businesses ‘in distress’ will not automatically lead to economic growth. Recent data from Experian identified the growth of ‘gazelle’ businesses, mid-sized firm that have achieved significant growth over the past three years, but these cases are still relatively small and their numbers will have to increase to overtake the zombie numbers which we estimate are still much higher.

“Concerns over utility bills and revenue show that businesses still feel they are being squeezed on both sides.

“They depend on utilities to operate, making it hard to cut costs, and with consumers unwilling to spend, businesses are likely to be increasingly concerned about their margins.

“Access to credit seems to have become less of an issue, perhaps businesses are getting used to life without easy access to funds, but it could also indicate that many businesses are not even bothering to go to banks for funding

“While the numbers of firms experiencing signs of distress may have fallen, they still equate to many hundreds of companies, all of which should be taking decisive action to address and resolve their situations sooner rather than later, so they have the best possible chance of working through their difficulties and substantially enhancing their long-term prospects.”