Credit impact is beginning to bite

The Forum of Private Business (FPB) is highlighting research showing that, while some industries have experienced a fall in the number of firms going into administration, despite the credit crunch, there has been a significant rise across most sectors.
According to research carried out by accountancy firm Deloitte, fewer firms in the manufacturing and retail industries, in particular, went into administration in the first quarter of 2008, compared to the same period in 2007. However, the FPB believes that the full impact of the global economic slowdown on small firms has yet to be felt.
Measures to stimulate entrepreneurship and allow smaller firms to compete with their larger rivals, such as cutting tax and red tape, should be far higher on the government’s agenda if smaller businesses are to stand a better chance of surviving and growing in the current economic climate.
“Deloitte’s figures represent how strong and resilient some small businesses can be in the face of a tough economic climate. However, the difficulties caused by this credit crunch are beginning to take their toll. Those sectors which haven’t felt the impact yet soon will,” warned the FPB’s Policy Representative, Matt Goodman. “With the Government raising taxes and the banks more concerned about their shareholders, the FPB will do its best to make sure that small businesses have the tools and support they need to weather the credit crunch storm.”
The recruitment and business service sector experienced the biggest increase in firms going into administration, with 85 in 2008, compared to 36 in 2007 – a huge leap of 136.1 per cent. Printing and publishing saw a 71.4 per cent rise (from 21 instances to 36), closely followed by mining, energy and agriculture with a rise of 66.7 per cent (up from 9 to 15). Property, construction, electrical installation and plumbing also experienced an increase (up by 54.1 per cent, from 109 to 168), as did film and photography, media and IT (up by 47.1 cent, from 34 to 50), healthcare and social services (22.2 per cent, from 18 to 22) and hospitality and leisure (16.7 per cent, from 60 to 70).
However, the UK’s long-suffering manufacturing industry is showing signs that it has, so far, avoided the worst of the global economic downturn. The study found a 38.9 per cent fall in the number of manufacturing firms going into administration, from 175 in 2007 to 107 in 2008. The number of retailers going into administration also went down, by 42.9 per cent, from 98 to 56 instances. Similar positive trends were experienced by wholesale and distribution (with 30 per cent fewer instances of firms going into administration, from 70 in 2007 to 49 in 2008), and transport and communications (a 25 per cent decrease, from 64 to 48).
Deloitte’s Reorganisation Services Partner, Lee Manning, agrees that businesses had experienced only the tip of the iceberg. He expects the retail and manufacturing sectors to feel the real impact of the credit crunch in the near future.
“Given the current economic climate, it is surprising to see a 43 per cent fall in the number of retail businesses that went into administration this year, compared with the year before. In the manufacturing sector, we have seen nearly a 40 per cent drop in administrations from the previous year,” he said. “While the credit crunch bites hard in the City, with lenders all but closed for business at the larger end of the market, the pain has yet to be felt as severely in the manufacturing and retail industries.”
Lee added: “The data demonstrates that it takes some time for shifts in the economic cycle to impact profits, administrations, unemployment levels. It also suggests that the downturn may be felt for some time to come. It is unlikely that these relatively positive administration levels will continue throughout this year.”
The Forum of Private Business was formed in 1977 and fights on behalf of private businesses. Today it represents some 25,000 UK-based businesses, which in turn employ in excess of 600,000 people. It offers a range of services to help members to grow in spite of the current economic climate, including business guides covering topics from employment law to health and safety, legal expenses insurance supported by a 24-hour legal helpline, and asset finance.