Prospect of insolvency for UK businesses' set to fall for the coming year

As the outlook for the UK economy continues to remain uncertain, UK business owners’ fears over insolvency have dropped considerably. New research from leading wealth management and professional services group Evelyn Partners2 finds that just under one in three (32%) UK businesses surveyed acknowledge there is a risk that they will become insolvent in the next 12 months. While a high proportion, this is down considerably from September 2022, when 47% of firms believed there was a risk of insolvency.

27 Jun 2023
Authors
Claire Burden (1)

Prospect of insolvency for UK businesses' set to fall for the coming year

As the outlook for the UK economy continues to remain uncertain, UK business owners’ fears over insolvency have dropped considerably. New research from leading wealth management and professional services group Evelyn Partners2 finds that just under one in three (32%) UK businesses surveyed acknowledge there is a risk that they will become insolvent in the next 12 months. While a high proportion, this is down considerably from September 2022, when 47% of firms believed there was a risk of insolvency.

Corporate insolvencies are at a four-year-high according to the latest government data. However, with prospects of insolvencies easing, the research could indicate that these figures are reaching their peak.3

The research of 500 business owners with revenues of £5m upwards indicates that business confidence has remained largely stable over the past nine months, with 77% of businesses confident they will survive an upcoming recession, in line with the 78% that reported the same confidence in September 2022.

This stable outlook comes despite the challenges that have arisen in the intervening period, including sticky inflation, ongoing rate rises, toughening lending criteria and higher taxes.

Businesses row back on serious measures as confidence stabilises

Businesses now seem to be in a stronger position to weather this uncertainty and have rowed back from plans to batten down the hatches.

In September 2022, over half (52%) of businesses expected1 to embark on a round of redundancies, this has now dropped to just over one in three1 (36%).

Almost one in two (48%) businesses thought it likely1 they would need to withdraw from a key market in September 2022, a risk that has since dropped to just less than one in three1 (32%).

The risk of legal challenges has also dropped considerably in the same period, from 49% to 33%1.

Funding remains challenging for businesses

Despite this stable outlook, financing and the cost of funding remains a significant risk and challenge for UK businesses.

Instability across the banking sector sparked by the US regional banking crisis has had a direct impact on UK businesses. Less than one in five (18%) UK businesses state they have been negatively impacted by suppressed lender appetite in the wake of the collapse of Silicon Valley Bank.

In the past six months, almost three in ten (29%) UK businesses have faced difficulty4 sourcing funding, with 9% of businesses stating this has been “very difficult”.

The funding picture does not look set to improve in the near term. With forecasts indicating rates could peak at 5.75% later this year and bond yields at their highest levels since 2008, two in five (40%) businesses believe they will continue to face funding challenges1, and almost a third (31%) of UK businesses think there is a risk they will default on their debt in the next 12 months1.

Businesses turn to alternative means of funding

With traditional lender appetite suppressed, UK business owners are looking to alternative means of funding to finance their businesses. Of the total capital UK businesses are looking to raise in the next six months, just 12% of this funding will be from traditional banks.

Instead, UK businesses are turning to more alternative means of funding such as credit funds, where 9% of funding is set to be raised in the next six months.

To bolster their capital reserves, businesses are also turning to their assets. The lease back of physical assets is set to raise 10% of total capital in the next six months, while sale of operational assets is expected to raise a similar amount (8%).

Claire Burden, Partner at Evelyn Partners:

“Businesses have weathered an exceptionally challenging winter, in which the cost of funding has soared, consumer confidence has taken a sizeable hit and energy prices have rocketed. Emerging out of these challenging months, it is encouraging that business confidence remains stable, and survival prospects have improved as businesses look ahead over the next year.

“Businesses are not out of the woods just yet, however. Although funding remains in ample supply, banking instability and interest rate rises has led to a buyers’ market. For borrowers and management teams this has resulted in more cumbersome financing processes. Businesses looking to re-finance or take on additional funding should therefore start the process early and enlist the support of specialist advisors to help identify funding options and the providers best aligned to their business needs.”

ENDS

Notes to editors  

  1. Combining ‘Very likely’ and ‘Somewhat likely’ answer options
  2. Nationally representative survey of 504 business owners aged 18+ with turnovers of £5m+ conducted by Censuswide between 28th April 2023 to 9th May 2023.
  3. Monthly Insolvency Statistics May 2023

https://www.gov.uk/government/statistics/monthly-insolvency-statistics-may-2023

  1. Combining ‘Somewhat difficult to access capital’ and ‘Very difficult to access capital’ answer options

About Evelyn Partners

Evelyn Partners is the UK’s leading wealth management and professional services group, created following the merger of Tilney and Smith & Williamson in 2020. With £62.2 billion of assets under management (as at 30 June 2024), we are one of the largest UK wealth managers ranked by client assets and the seventh largest accountancy firm by ranked by Group fee income (source: Accountancy Age 50+50 rankings, 2023).

We have a network of offices in 30 towns and cities across the UK, the Republic of Ireland and the Channel Islands. Through our operating companies, we offer an extensive range of financial and professional services to individuals, family trusts, professional intermediaries, charities, and businesses.

Our purpose is to ‘place the power of good advice into more hands’, and we are uniquely well-placed to support clients with both their personal financial affairs and their business interests. Our personal wealth management services include financial planning, investment management, personal tax advice and, through Bestinvest, we have a multi award-winning online investment service for self-directed investors. For businesses, our wide range of services includes assurance and accounting, business tax advice, employee benefits, forensics, fund administration, fund governance, recovery and restructuring and transaction services. 

For further information please visit: https://www.evelyn.com/

Disclaimer

By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. This briefing does not constitute advice nor a recommendation relating to the acquisition or disposal of investments. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication.

Issued by the Evelyn Partners group of companies (the “Group”) which comprises Evelyn Partners Limited and any subsidiary of Evelyn Partners Limited from time to time. Further details about the Group are available at: https://www.evelyn.com/legal-compliance-regulatory/registered-details