The number of IT firms in financial distress rocketed in the final quarter of 2010, according to figures released by business recovery specialist Begbies Traynor.
Swingeing public sector spending cuts have hit the IT sector badly, the firm claimed, with a 27 per cent increase in companies showing signs of distress, compared with Q3 2010.
The figure is a nine per cent increase on Q4 2009. Begbies Traynor’s latest Red Flag Alert claimed that a total of 147,836 UK firms face ‘significant’ or ‘critical’ financial problems, and those facing critical problems alone are struggling with nearly £53bn worth of liabilities.
However, the IT sector is hardest hit by public sector cuts, followed by other industries, including construction (up 21 per cent), recruitment (up 18 per cent), advertising (up 16 per cent) and business services (up 25 per cent).
Nick Hood, partner at Begbies Traynor, said: “With almost 8,000 IT businesses showing signs of financial distress in our Red Flag Alert statistics in Q4 2010, there are real worries that this at-risk sector is being badly hit already by the public spending cuts announced in October 2010, but not due to impact fully until the new fiscal year starting next April.
“Many of these companies are small and under-capitalised, often dependent on only one major client, making the task of raising working capital especially difficult in these days when funders are more risk-averse than before the global recession,” he added.
Hood claimed that IT businesses have historically been insulated by public sector spending and fixed-term contracts, but these are coming to an end.
“IT businesses have also been among the heaviest users of the various government support schemes during the recession, so that as the pressure on scarce government resources mounts, and these schemes are tightened or withdrawn, the casualty rate will inevitably rise. 2011 looks as if it will be a very difficult year for the IT sector,” Hood said.
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