The number of active businesses across the North East rose by almost four per cent during 2018 – but the proportion of regional firms with a raised risk of insolvency increased by eight percentage points over the same period.
New research by insolvency and restructuring trade body R3 has found a net increase of over 3,000 firms based in the North East over the year, with the number rising from 79,600 in December 2017 to 82,700 12 months later.
However, the overall proportion of North East firms with a higher than normal risk of entering insolvency in the next 12 months had hit 41% by the end of 2018, compared to 33% in December 2017.
The proportion of companies judged to be at higher than average risk of insolvency increased in each of the 11 key industries that R3 monitors. In percentage point terms, the hotel sector saw the smallest rise in the proportion of companies at elevated risk over 2018 (December 2017: 23%; December 2018: 27%), while the professional services sector saw a rise of 12 percentage points, the highest of all the sectors monitored by R3 (December 2017: 39%; December 2018: 51%).
Despite this, regional firms in seven of these 11 industries currently monitored have roughly the same or a lower percentage of companies at higher than usual risk when compared with the national average, while the 41% cross-sector average for all North East companies is slightly better than the overall UK figure (42%).
The North East pub and restaurant sectors have the lowest proportion of companies at higher than normal risk of any region in the UK, while the agriculture and hotel sectors are in second and third place in their respective lists in the latest tables.
On the downside, just over half (51%) of the North East’s professional services firms are currently considered to be at higher than normal risk of insolvency, compared to a national average of 49%, while the regional retail and manufacturing sectors’ performance is also on the wrong side of the national average.
R3’s insolvency risk tracker is compiled using Bureau van Dijk’s ‘Fame’ database and measures companies’ balances sheets, director track records and other information to work out their likelihood of survival over the next 12 months.
Andrew Haslam, chair of R3 in the North East and head of specialist business advisory firm FRP Advisory LLP’s Newcastle office, says: “It’s good to see that, despite a range of uncertainties swirling around the regional and national economies, the North East’s entrepreneurial spirit remained in good health through 2018, with an average of over 250 new businesses being set up every month.
“However, with the number of companies at heightened risk of insolvency continuing to rise across the board, this net increase in businesses hides an inevitable truth that many regional firms will also have struggled this year.
“Our leisure industries look to have enjoyed a solid end to 2018, as they would doubtless have hoped, and sectors like transport, agriculture and construction have encouragingly held their own against peers around the UK.
“The regional retail sector is not alone in its continuing struggles, and the fact that so many stores started their winter sales so far in advance of Christmas suggests there could be further trouble ahead for some of them during what is traditionally the quietest part of the retail year.
“About the only thing we can confidently predict about the economic climate in 2019 is its unpredictability, and if business owner/managers can see financial problems on the horizon, it’s vital that they look for qualified advice on the best ways to address them as soon as they can.”
