Firms struggle to stay afloat
The number of firms identified as having financial difficulties is spiralling, Begbies Traynor's Red Flag unit reports
After 18 months advising, protecting and mentoring clients, accountancy firms
have forgotten to look after themselves.
Each month around 500 firms are identified as being in financial difficulty,
according to the latest statistics – five times the April 2008 figure.
The statistics, collated by Begbies Traynor’s Red Flag unit, paint a
disturbing picture, particularly if more of the firms’ debtors, their clients,
enter into insolvency as is forecast when the economic recovery begins.
Those in difficulty are described as having “significant problems”, which
amounts to being loss making, having negative balances on the balance sheet,
filing accounts late or facing court action.
“A firm can go under very quickly,” said Ronnie Goldsmith, group MD of
M&A specialists Goldsmiths. “They’re up against their banking limits, the
salary cheque bounces and then no work goes out the door and no money comes in.”
More than 70 firms have been declared insolvent in the past 18 months, while
the latest figures for October reveal 11 firms classed as in severe financial
difficulty – which means having a County Court judgment for more than £5,000 or
receiving a winding up order.
Struggling clients and strong competition in the accounting marketplace will
mean fewer firms. “We’ll see considerably fewer practices in the next 12 to 18
months,” said KATO Consultancy’s Phil Shohet. “Firms are running for cover and
have to find a home.”
Nick Hood, Begbies Global Network executive chairman, said that firms which
failed to grasp strong credit management would be the first to struggle. “If you
haven’t got a culture of monthly or quarterly billing and of only doing work
when you’re paid up, then you’re heading for trouble.”
Most recently Titcheners entered into administration after its acquisitive
strategy failed, and its efforts to stave off the taxman while it agreed a sale
of the business fell on deaf ears.
Further reading:
Lessons to be learned from
Titcheners’ collapse
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Accounting Software The power of customisation in accounting systems
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will survive recession