During the recession, unemployment reached high levels in many areas of the country and this led to a spate of business start-ups as many struggling to find work chose instead to become self-employed. However, this greatly increased the rate of business failure as many SMEs failed to obtain the necessary funding to keep their company afloat as a going interest.
Fortunately, this trend seems to have reversed in Scotland, with the number of business failures recently shown to have dropped for the third consecutive quarter. According to KPMG, the total number of insolvencies during the quarter fell to only 230 – a 27 per cent drop from the same period in 2012, where a total of 316 businesses faced this issue.
In the first and second quarters of this year, business insolvencies fell by 46 per cent and 45 per cent respectively. Although the most recent quarter’s figures fall short of this, this is not necessarily a negative sign as it demonstrates an element of stability returning to the professional platform.
Head of restructuring for KPMG’s Scottish operations, Blair Nimmo, believes that credit agencies and financial authorities have played a role in the positive results.
He says; “These figures show a positive slowing in the number of business failures, which is good news for the Scottish economy.
“Year on year the number of insolvencies, for both larger and smaller businesses, continues to fall.
“As we take the first steps towards recovery, our figures suggest an increasingly more benign environment, with trade creditors, banks and the HMRC now more likely to explore alternative solutions rather than taking insolvency action.”
In total, the annual number of company failures in the year to the 30th September fell 33 per cent, from 1,262 in 2012 to 837 in 2013. This marks the first annualised drop since 2008 – yet another sign that the country is managing to get back onto its feet after the recession.
Furthermore, the news is good for small companies, with liquidations dropping by 30 per cent in the third quarter. However, for larger companies, an element of caution should remain as administrations and receiverships remained static when compared to 2012’s results.
Mr Nimmo believes that this may indicate an issue regarding the accessibility of growth capital.
He concludes; “It may be too soon to say whether this will translate into investment for growth as, although the number of new insolvency cases to come across our desks continues to fall, our debt advisory practice remains busy with companies – both large and small – who are still struggling to access finance.
“Recovery will be a slow process but our experience tells us those businesses which survived the worst of the economic downturn, by restructuring to focus on preserving cash and reducing costs, should now be well placed to take advantage of the gradual return to growth.”
With the news from across the border overwhelmingly positive, it remains to be seen whether England and Wales have achieved similar levels of success. Hopefully these figures will continue to stabilise and put the minds of small and large business owners at ease regarding their financial futures.
Do you think businesses which have had to adapt to austerity will now struggle to achieve growth, bringing a new set of problems for the economy?
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