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25% of British companies struggling with company debts

Date Added: 04/12/2012  

Almost one-quarter of businesses in the UK are struggling to pay back company debts, according to new research.

A study of accounts filed by 25,000 British organisations - with sales of between £5 million and £25 million - revealed that 24 per cent are lacking the necessary funding to get back into the black.

Chartered accountants and business advisory body Baker Tilly's distress monitor for small and medium-sized enterprises (SMEs) found that professionals are also having to tackle poor margins, showing that businesses are "chasing sales at the expense of profits" and depleting "cash reserves".

Bruce Mackay, restructuring and recovery partner at the company, said SMEs are continuing to face numerous challenges in the current economy.

The expert was quoted by the Telegraph as saying he is concerned about the number of organisations that are failing to raise the cash to pay their short-term debts, as well as the fact that the rate of sales declines is slowing, profits are suffering and many companies are selling more at narrower margins.

"Previous recessions have shown that businesses risk failing due to cash-flow constraints as the economy starts to recover," he added.

The research indicated 21 per cent of firms reported a decline of more than 50 per cent in pre-tax profits, which is a slight improvement compared with the previous year's figures.

In addition, one in every 39 businesses is at risk of needing a major restructuring or insolvency process within the next 12 months.

However, insolvency levels are relatively low and there has been a 25 per cent decline in the overall number of administrations.

Mr Mackay continued: "I fear we may see more businesses going under if they aren't able to manage their working capital needs effectively.”

This comes after a recent survey conducted by insolvency trade body R3 announced there are now around 160,000 zombie firms - companies that are only able to pay off interest on their loans - in Britain, which accounts for approximately nine per cent off all businesses.

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Posted by Miles Pritchard

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