BDO Predicts Fall in Business Failure Rates

Weak growth and economic fundamentals mean that business failures in 2011 and 2012 will be higher than last year, but the long term outlook is improving, according to research from BDO.

The firm’s Industry Watch report says business failures will be down by 21.6% from a peak of 26,196 in 2009 to a predicted 20,536 in 2015. But they will remain above pre-recession levels of 16,431 in 2007, due to the recession having a long tail.

BDO’s report identifies a squeeze on UK households’ disposable income as one of the primary reasons behind the slow recovery from the recession. The study predicts that consumer-dependent sectors such as retail and wholesale and personal services are likely to be the worst affected.

The firm’s analysis suggests the number of business failures in retail and wholesale is set to rise by 12.5% to 3,104 in 2011 from 2,759 in 2010, while insolvencies in personal services, such as the hair and beauty and consumer goods repairs, will see an increase of 2.8% to 1,288 in 2011 from 1,252 in 2010.

Business failures in the manufacturing sector will continue to fall in 2011, but will do so at a slower pace than previously anticipated, down from 1,939 in 2010 to 1,858 in 2011. However, with exports expected to grow by 5.3% in 2012, this should result in the number of manufacturing business failures settling below pre-recession levels next year.

In contrast, BDO says insolvencies in the business services sector are likely to fall only modestly, by 2.2% from 4,463 in 2010 to 4,366 this year, although the firm expects them to reach pre-recession levels by 2015.

Shay Bannon, BDO’s head of business restructuring, said: ‘Given the situations in the US and Eurozone, business failures are at a level below that which we might have anticipated, especially given the plethora of negative data. In the longer term, we’re seeing a downward trend. In particular, we’re seeing that businesses with a turnover of more than £1 million are proving particularly resistant.’