SMEs bearing the brunt of poor business conditions

by Rachael Singh

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19 Oct 2012

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SMEs caught in a tug of war between HMRC and Parliament

THE UK'S SMEs are suffering at the hands of large businesses, according to a Begbies Traynor Red Flag report.

SMEs exhibiting signs of early stage distress increased 10.5% in the third quarter compared to the previous one – this is in stark contrast to the 61% decline seen in large companies.

The Begbies Red Flag data monitors early signs of companies in financial difficulty, broken down on a quarterly basis.

Julie Palmer, partner at Begbies Traynor, said: "These figures demonstrate that an increasing number of SMEs are bearing the brunt of the current challenging credit and trading conditions. It is evident that larger businesses are exploiting their scale by enforcing lengthier payment terms on SMEs.

"This, together with the disproportionate impact of higher energy prices and the limited availability of funding support, is combining to form a perfect storm for the UK's SME sector."

This week Sainsbury's came under fire by the Forum of Private Business for increasing all non-food supplier payment terms from 30 to 75 days.

The move has seen the Forum enter the grocer in to its 'Hall of Shame', where it will join other large businesses such as Dell, Argos and Carlsberg, which have all previously increased supplier payment times retrospectively.

Other findings in the Red Flag report showed that the UK has seen a 9% increase in combined stress levels in Q3 compared to the previous quarter.

However there is a marked north/south divide. Southern-based businesses saw a 7% increase in combined stress levels.

Quoted companies are continuing to feel the crunch as they made the most profit warnings in a third quarter since 2008, according to an Ernst & Young profit warnings report.

According to their study, 68 profit warnings were made by quoted businesses in Q3 2012 – the highest third quarter for four years and eight more than the previous quarter.

Adverse weather conditions were blamed by 12 businesses, with other reasons such as weak UK demand, a slowdown in global markets and the growing risks to the economic outlook.

Keith McGregor, head of restructuring for Europe, Middle East and Africa, said: "While some profit warnings from consumer facing sectors blamed the poor weather, the underlying weakness of the UK economy and global growth concerns landed the heavier blows to profits and expectations.

"In the UK, an exceptional series of one-off events has inevitably created dips in demand and productivity which has made it hard to get an accurate fix on the state of the economy. Across Europe, the outlook still appears weak and economic growth will remain slow."  

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