Baker Tilly Restructuring and Recovery / Company Watch
SME Distress Monitor
United Kingdom
1
Sept/Oct 2011
Restructuring and Recovery
Real people, real solutions
Cash is king. We’ve heard this enough times during the recession. But now, the findings of the
Baker Tilly/Company Watch SME Distress Monitor show just how critical cash reserves will be
for Small & Medium Enterprises (SMEs) if they are to survive the economic recovery.
According to our research into businesses with
sales of between £5 million and £25 million,
making sure they have much needed working
capital is challenging for many. Worryingly,
almost a quarter of these SMEs across the UK
saw a drop of over 50% in their profit before tax
levels, according to their full 2010 filed accounts.
In addition, over a quarter saw a decline of 10%
or more in their sales figures. It seems that,
despite all efforts to preserve top line revenue, the
impact of global inflation and consumer caution
is severely impacting the bottom line of
businesses, whatever their industry sector.
UK SMEs with declining sales
>10%
London - SME's with fall in Sales greater than 10%
26%
UK SMEs with fall in PBT (Profit Before Tax)
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Servicing debt remains crucial to business
survival. Of concern, our research shows almost
one in every four UK SMEs has a current ratio
below 1 which indicates insufficient resources
to meet their immediate debt repayments.
28% are currently in the warning area of the
Company Watch H-Score®, where a score of
25 or below signals potential distress in the
financial health of a company. The vast majority
of companies that fail are in this range prior to
their failure.
The financial situation appears even more critical
for one in every 35 SMEs in the UK, as the
Produced in association with
>10%
34%
31%
>20%
>30%
Source: Company Watch, Sept 2011
27%
24%
>40%
>50%
UK current and future distress indicators
Current Ratio <1
>20%
London - SME's with fall in Sales greater than 20%
Interestingly, the trend has not been reflected in
formal insolvency levels. We expect the market
will remain tough over the coming months,
particularly for companies already showing signs
that they are struggling with cash flow issues. In
recent years, many businesses have benefited
from a generally supportive economic
environment, bolstered by quantitative easing
and HMRC’s Time To Pay arrangements.
39%
16%
24%
H-Score® <25
28%
Source: Company Watch, Sept 2011
PoD® (Probability of Distress)*
1:35
Administrations - England and Wales
*In next 12 months
800
700
779
782
777
600
633
695
642
500
400
300
200
100
0
Source: Company Watch, Sept 2011
Q1 2010
Q2 2010
Source: The Insolvency Service
Company Watch PoD® (Probability of Distress)
indicates that this number are likely to go through
a major restructuring exercise or enter into formal
insolvency within the next 12 months.
With relatively high numbers of businesses
currently financially distressed, taking action and
seeking professional advice early will be critical.
Addressing the issues as soon as possible can
increase the options available to a business and
consequently, their chances of survival.
Baker Tilly UK Audit LLP, Baker Tilly Tax and Advisory Services LLP, Baker Tilly Corporate Finance LLP,
Baker Tilly Restructuring and Recovery LLP and Baker Tilly Tax and Accounting Limited are not authorised
under the Financial Services and Markets Act 2000 but we are able in certain circumstances to offer a
limited range of investment services because we are members of the Institute of Chartered Accountants
in England and Wales. We can provide these investment services if they are an incidental part of the
professional services we have been engaged to provide. Baker Tilly & Co Limited is authorised and
regulated by the Financial Services Authority to conduct a range of investment business activities.
Q3 2010
Q4 2010
Calendar Year – Quarters
Q1 2011
Q2 2011
Sarah Batchelor and
David Hudson are
Restructuring and Recovery
partners at Baker Tilly.
sarah.batchelor@bakertilly.co.uk
Tel: 020 3201 8000
david.hudson@bakertilly.co.uk
Tel: 020 3201 8000
www.bakertilly.co.uk
This publication is designed for the information of readers. While every effort has been made to ensure accuracy, information contained in this newsletter may not be comprehensive and recipients should not act upon it without seeking professional advice.