Business failure rate soars as credit crunch starts to claim victims

Leisure Report, May, 2008

The Equifax Business Failures Report for the first quarter of 2008 has revealed an increase in business failures across all sectors and regions.

Total failures rose by 9.1% compared to the same period last year, with only the manufacturing sector seeing a drop in failures by 2.8% looking at the same quarter in 2007.

Business information provider Equifax warned that the credit crunch is taking its toll on all industry sectors and cautioned firms to expect a tough year ahead.

"The transport and communication sector was the worst hit, seeing a substantial 16.3% increase year-on-year, up 8.3% compared to the fourth quarter of 2007," said Nell Munroe, external affairs director of Equifax. "The gloomy picture is further supported by the latest CBI report, which reveals that business volumes fell to a balance of -30%.

The CBI survey shows firms expect the credit crunch to get worse over the next six months, as they continue to find it difficult to raise funds, restricting business growth.

"Business failures rose by 11% in the construction sector, with retail showing a further 9.1% going bust in this quarter compared to 2007. Manufacturing is alone in managing to buck the trend, but in such a tough market, there's not much room for celebration."

Leisure firms are classified under services, which saw an 8.3% increase in the number of failures year-on-year, and a 1.3% quarterly rise.

The regional picture reveals a 21.4% increase in failures in the North West, followed by 20.9% in the East Midlands and 20.3% in Yorkshire and Humberside.

Only Scotland continues to see a drop in the number of businesses in the region going bust, down 23.8%. The South East saw a slight drop of 0.4% compared to the same period in 2007 and a 4.8% drop compared to Quarter 4 2007.

"This is not a good start to the year for most business sectors in all regions, with the credit crunch showing no signs of abating," Munroe concluded. "Banks are going to look at businesses just as closely as they are looking at individuals, making it harder for firms to get funding to pay off debts and bolster cash flow.

With this in mind we urge companies to protect themselves from not a good debt by conducting rigorous credit checks supported by ongoing monitoring of customers' and suppliers' financial status.

"There are tough times ahead and it is clear that firms need to do more than ever to secure the future of their business and protect themselves from the risk of failure. It only takes one customer going bust to jeopardise a business, but careful monitoring today, can reduce the threat of bad debt tomorrow."

Increase or decrease in business failures

Q1 2008 vs 01 2007 and 01 2008 vs Q4 2007

Source: Equifax

                             Q1 2008 vs 01 2007   01 2008 vs 04 2007
                                     % (to 1dp)           % (to 1dp)

Construction                              11.0%                 7.9%
Manufacturing                             -2.8%                -6.8%
Wholesale                                  4.3%                 3.9%
Services                                   8.3%                 1.8%
Retail                                     9.1%                11.8%
Transport 8 Communications                16.3%                 8.3%
Total                                      9.1%                11.1%