SMEs showing more signs of distress than big firms

Small and medium-sized firms are currently having a tougher time of things than big businesses when it comes to generating revenue, new research has indicated.

Insolvency trade body R3 recently polled more than 500 organisations and found that 29% of SMEs had seen quarterly and yearly reductions in sales, compared to 6% of big businesses.

It classifies SMEs as companies with a turnover below £20m.

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The research also revealed that more than a third of SMEs are experiencing decreased profits compared to 19% of big businesses.

“The Government has created a number of schemes to support SMEs, as they are vital to the health of the economy but they need more help to survive this difficult economic environment,” said
R3 president Frances Coulson.

“However, it is clear that many SMEs are not financially robust enough to withstand the economic pressure. Either more support is needed in 2012 to enable a real recovery or some businesses will inevitably fail rather than continue to limp along, damaging competition,” he added.

Across the board, fewer businesses (58%) are feeling signs of distress. This is down by 10 percentage points on last quarter (68%) and significantly lower than December 2010, when over three quarters (77%) of businesses reported feeling signs of distress.

Coulson says these figures could suggest “the calm before the storm” as traditionally businesses don’t fail in the middle of a recession, but when the economy is recovering.

“The ‘insolvency lag’ we have seen in previous recessions is slower to materialise this time around, and traditionally insolvencies increase during the recovery phase,” he said. “This is because a company’s financial outlook starts to improve and creditors stand to achieve greater returns than they would during the downturn. Furthermore, changes in the policies of lenders and the government could force ‘a clear out of the system’, but whether this will happen in 2012 is doubtful.”

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