SME particularly badly hit as public sector spending contracts

The number of construction firms experiencing financial difficulties increased by 20%, compared to last quarter, according to the Begbies Tryanor Red Flag report.

The report, which monitors the early warning signs of company distress, shows the number of construction firms either in trouble or potentially in financial trouble increased by 20%compared to the previous quarter, to 19,167. This is an 8% increase on the same period in 2009.

Executive chairman of Begbies Traynor Group, Ric Traynor said: “Today’s figures show that UK businesses are demonstrating real signs of distress and that trade creditors are both losing patience with their debtors and in need of collecting cash into their own businesses.

“These figures indicate the renewed challenges facing businesses across most industries in 2011, particularly in the SME sector. The sectors most reliant on government spending are already feeling the impact of public sector cuts, confirming the financial effects of the recent contraction in the services and construction sectors.”

He added: “With the full implementation of budget cuts only starting to show through in these figures, public sector exposed sectors are likely to face significant increases in the level of corporate failures over the course of 2011.”

Highlighting the risks smaller companies face, Traynor said: “For smaller businesses, we are entering the darkest hour before the dawn; as they face the dual challenges of weak domestic demand and greater pressures from larger competitors and business customers looking to preserve their own profitability. As such, it will be smaller businesses that bear the brunt of an increase in formal insolvencies.”