KPMG has found that one in five UK businesses are financially stressed.
According to the research, more than 1,000 organisations are in situations of acute distress; KPMG has analysed findings from all UK businesses that had revenues of more than £10 million over the five years to the end of 2018.
In this time, those businesses grew to 27,000 – 5,000 higher than four years previously.
But after looking at metrics such as trading performance and profitability; cashflow and liquidity; and debt leverage, those businesses that are financially stressed grew.
Indeed, across that time, the number of businesses that appear to be financially stressed grew from 19% to 21%, whilst those who are ‘distressed’ remained steady at 4%.
Because of the growth of companies with revenues exceeding £10 million, it means in absolute terms that the number of financially stressed businesses in the UK have risen from approximately 4,300 in 2014 to 5,700 in 2018 – compound annual growth of 7.7%.
For those in acute financial distress, that compound annual growth rate is even higher, registering at 8.9%. This translates to almost 1,100 businesses in acute financial distress in 2018, compared with under 800 in 2014.
KPMG’s Head of Restructuring is Blair Nimmo. He said said that while the data reveals “underlying strength” of the British economy, work is needed to avoid stress turning into distress.
“Whilst the number of companies bringing in revenues of over £10 million has grown strongly over the last five years – highlighting the underlying strength of the British economy – there’s no doubt that such growth can bring with it significant challenges.
“Whether it’s long-established companies betting against well-known economic headwinds, or those entrepreneurial scale-ups who are struggling to maintain a grip on cashflow during periods of rapid growth, the fact is that without action, stress can very quickly turn into distress.
“When we talk about ‘stress’, we typically mean companies which may have experienced instances of negative cashflow or working capital, defaulting on debt repayments or with high debt-to-equity ratio.
“Taken individually, all can be relatively manageable.
“However, an accumulation of such factors can indicate a company is veering towards distress – and possibly insolvency.”