Almost a quarter of all British businesses have been rated as Danger as the UK economy continues to be buffeted by the coronavirus, according to latest research from financial analysts Plimsoll.
Plimsoll has just updated the 1600 individual market studies it produces covering the financial performance and future prospects of the UK’s more than 400,000 major businesses. The warning signs are grim with the number of UK companies that were financially weak heading into the crisis already at worrying levels.
Of the 400,000 companies analysed, valued and rated in a Plimsoll Report, 96,000 were rated as Danger. Plimsoll’s rating of a company is based on its graphical ratio analysis of overall performance. Any company that experiences a 40% decline in its Plimsoll Chart in a single year needs to address their decline immediately. Companies that suffer a 40% decline in consecutive years are unlikely to survive. There are 67,000 that fall into the first category and 29,000 that are in the second. Insolvencies among these companies will rise sharply once Rishi Sunak winds down the government support structures.
The problem is building particularly among SME’s. 27% of businesses with sales below £5 million per annum were rated as Danger by Plimsoll compared to 22% among their larger peers with many struggling to access the governments CBILS scheme.
Of course, government assistance during the pandemic has kept insolvencies and job losses artificially low. Schemes such as CBILS, furlough protection and an inability for creditors to take court action during lockdown have allowed companies some breathing space. As these schemes are wound down, the risk of already weakened companies falling into insolvency becomes become ever more real.
The companies that were already rated as Danger before COVID-19 need to address weakness in their company’s financial stability in order to survive. The ability to trade their way to financial health following their previous strategy could prove impossible. A sharp refocus on what parts of their business to retain and how many people are really needed are the only options many have left. Trade Unions are already warning of a tsunami of job losses as support is withdrawn but most companies have little choice and the government has finite resources. The number of insolvencies we have seen so far is likely to be the tip of the iceberg. This group of consistent troubled companies will be the worst, and first affected.
However, it is worth noting that among all of this gloomy news, more companies will survive and thrive than will fail. For those that make it through the pandemic with their financial health intact will be heartily rewarded over the coming decades as the virus becomes a memory and markets, however reshaped by the crisis, move on to the “new normal”. Less competition and increased productivity from the changes in working practices and technological gains the virus forced on us in 2020 will help many to thrive in the coming years.
Plimsoll produces 1600 individual market reports that individually assess the financial health, value and future outlook of every major company within it. Whether you are a protagonist looking to benchmark your own business against your competition or rely on the industry for your own busines and need a snapshot of stakeholder performance, a Plimsoll Analysis simplifies the process into mere minutes.
9 out of 10 companies currently in administration were rated as Danger by Plimsoll 2 years prior to their demise. Our graphical and written assessments on company performance are a proven predictor of company failure and provide early warning to owners and stakeholders alike.
Visit www.plimsoll.co.uk to find out more and see which industry studies cover your particular area of interest