UK business failure rate slowing down

Cloised for business: The number of firms going bust in 2009 slowed down towards the end of the year

The number of businesses that went bust in 2009 increased by 18 per cent, but the economic outlook is slightly brighter for 2010, one market-watcher has claimed.

Business information provider Equifax has released its Business Failures Report for Q4 2009 and the full year 2009, which shows that from the middle of 2009 onwards, the rate of business failures started to slow down compared to 2008 and early 2009.

Neil Munroe, external affairs director at Equifax, said: “Figures for the last quarter [in 2009] show a continuation of this trend with a 7.7 per cent year-on-year decrease. This has to be good news for the economy as a whole.”

Business failures last year were not as extreme as 2008, Equifax claimed. The number of firms going bust in Q4 2009 increased 22 per cent compared to 2007. But in 2008, the year-on-year increase was 32 per cent.

“Clearly the UK economy is not out of the woods – when comparing 2009 to 2007 overall there is a 39.5 per cent increase in failures,” Munroe said. “So the businesses that have survived so far must continue to be very careful about how they manage their customer and supplier relationships to ensure they get paid on time and don’t get caught out by bad debt or failure.”

On a regional basis, Q4 2009 showed a drop in the number of businesses going bust in every UK region, apart from the West Midlands. The East Midlands saw a 20.2 per cent drop in failures in the last quarter. Businesses based in the South West also saw a 21.3 per cent year-on-year drop. The London business sector saw a 13.4 per cent year-on-year drop.

Every business sector, with the exception of wholesale, saw a downturn in businesses going bust in Q4 2009 compared to 2008. The retail sector saw the biggest reduction in failure at 20.9 per cent, followed by transport and communications at 17.5 per cent. The IT sector, which falls into the overall service sector, also saw a 10 per cent drop in business failures, Munroe told CRN.

Munroe added: “Businesses right across the UK and across every sector should take real encouragement. But they must also continue to take the right precautions to protect themselves.”

These precautions included rigorous credit checks and ongoing monitoring of the financial status of their customers and suppliers, he said.

Looking forward Munroe said positive signs were emerging in the economy as a whole.

"I think it will be a twitchy first four months this year, but towards the end of 2010 or this time next year, we will hopefully be able to look back and see 2010 as a recovery year," he said.