Bad attitudes blamed for failing companies

Nick Hood: IT companies tend to be newer, with inexperienced management who tend to get caught up in feeling nothing could ever go wrong

The relative youth and inexperience of IT company owners is partly to blame for the rapid rise in distressed firms in the sector, a corporate restructuring expert has asserted.

Begbies Traynor recently revealed that the number of IT firms facing winding-up petitions or county court judgements of more than £5,000 rose 627 per cent year on year to 160 in the third quarter this year.

That is the highest rise of any sector, barring hire and rental services.

Nick Hood, partner at Begbies Traynor, said IT firm owners’ fast-paced lifestyles were partly to blame.

“IT companies tend to be newer, with inexperienced management who tend to get caught up in feeling nothing could ever go wrong. They have taken the profits and enjoyed the lifestyle rather than re-investing, which makes this sector more fragile than others,” he said.

Hood claimed that channel firms are particularly troubled.

“IT resellers intimately depend on the support of their suppliers, but firms such as Dell and Sony are getting much tougher with their customers,” he said.

Historically, 15 per cent of firms facing such critical problems have entered into a formal insolvency procedure within 12 months.

But Hood maintained that resellers that focus on cash, are open and honest with banks and suppliers and do not chase unprofitable business, will be well placed to survive.

Jonathan Lassman, managing director of reseller Network Technology Solutions, said: “If you stack high and sell cheaply you will have problems in any market.”