Cost-of-living crisis to push more firms over the edge, experts warn

Cost-of-living pressures and rising energy bills will pull more businesses over the line in the new year, experts warn.

Insolvency adviser Begbies Traynor expects increased demand for its services in the coming months following a 12 per cent rise in revenue to £58.5m for the half year to the end of October, while profits rose from £2.7m to £5m.

Rival FRP Advisory posted revenue growth of 10 per cent to £49.4m over the same period, despite profit falling from £5.7m to £5.4m. It also predicted an increase in demand.

AJ Bell investment director Russ Mold said that while the results were good news for the companies, it usually meant it was “bad news for almost everyone else.”

He said: ‘[Begbies] sees momentum building across his business – particularly in the insolvency section as UK businesses struggle.”

Begbies boss Ric Traynor said ‘the numbers are clearly on the rise’ when he revealed that in the year to September there were more than 20,000 appointments with clients seeking his services, the highest number in more than ten years.

While most of those struggling were small businesses, he predicted larger companies would soon be on the list and expected demand to “continue” into next year.

He said most companies were caught between rising costs and falling demand, both of which pushed them toward insolvency. Traynor expected things to get even worse in January, particularly for retail and hospitality.

“There’s going to be one last hurray this side of Christmas, but people expect it to be dead on January 1,” he said.

The Bank of England said corporate insolvencies were above pre-pandemic levels and expected to “rise further” in the coming months. The risk of companies defaulting on their debts and cutting jobs and investments had “increased,” the Bank warned.

Meanwhile, the Federation of Small Business (FSB) said nearly a quarter of small businesses could downsize or face bankruptcy if the government decided to stop providing energy bill support by the end of March next year.

This is 42 percent for companies in the accommodation and food sector and 34 percent for retail and wholesale.

The group’s research also found that 44 percent of small businesses were considering raising prices to cope with skyrocketing bills.

“After two years of Covid, this Christmas would be the one to bring back the small business spirit – but many small businesses are now worried they will have to close their doors for good in a few months if not weeks,” said FSB National Chairman Martin McTague.