Businesses across the South West are facing a “perfect storm” amid a rising tide of insolvencies, according to a leading business recovery expert.

The latest monthly insolvency statistics for January 2022 from The Insolvency Service show that the number of registered company insolvencies in England and Wales was more than double the number registered in the same month the previous year, up from 758 to 1,560. The number for last month is also higher than the figure recorded for January 2020.

Claire Burden is partner in the advisory consulting team at Smith & Williamson in Bristol, which is part of leading wealth management and professional services group Tilney Smith & Williamson, which is rebranding to Evelyn Partners this summer.

She says the figures reflect the fact that businesses are facing challenges from several directions.

“A number of factors have created a perfect storm for businesses, and this is particularly true of smaller companies that don't necessarily have the cash reserves, buying power or contingency plans in place to help them weather the storm,” says Claire Burden. 

She says all businesses are currently grappling with a number of pressures, including: 

•  High inflation.

• Rising costs, including increasing energy prices.

• Large amounts of debt resulting from significant borrowings during the pre-Covid economic boom.  

• Supply and fulfilment issues caused by a raft of factors, such as Brexit, worldwide shipping challenges, delivery driver shortages and staff absences due to Covid.

• People and skills shortages, with recruitment and retention fast becoming one of the biggest barriers to growth.

“Any one of these factors will place pressure on a business, but when combined, they can cause even the most robust business to buckle. This is why forward planning and a well-equipped armoury of contingency measures are fundamental to long-term success.”

Claire Burden says those businesses that used the past two years to consolidate and plan, are the ones that appear to be emerging from the pandemic in a healthy condition.

“By contrast, many of those that didn’t get their houses in order during the pandemic are starting to show signs of distress. SMEs are being particularly squeezed, partly because they are less likely to have the cash reserves or buying power that larger firms may have access to.

“Businesses in Bristol and other parts of the South West are faring better than many of their counterparts in London and the South East, and we are seeing lots of examples of good business management locally, but there is no doubt that the full effects of rapidly rising costs, supply issues and staffing shortages are still yet to be felt. 

“SMEs in particular will need to prepare well for the months ahead, paying special attention to cashflow and customers.”

Smith & Williamson is encouraging businesses to undertake a working capital review focusing on five key areas: 

• Accounts renewable, looking in particular at cash processes 

• Procurement

• Capital expenditure 

• Cost reduction

• Business strategy and management

Claire Burden says: "We hope that directors will get in touch with turnaround specialists at the first signs of stress, rather than wait until the business is so distressed that insolvency practitioners need to be called in.

“The sooner they can identify and forecast potential cash crunch points and put a plan together, the better. They may also want to consider a complete review of their working capital so they are in a better position to spot opportunities to work smarter and more efficiently to achieve a leaner and more profitable business without compromising on client or customer experience.”