Resellers encouraged to watch for danger signs
Report pinpoints bad debts and low margins as the biggest factor in IT business failures
Almost a quarter of the UK's top distributors and resellers are running the risk of failure according to financial analyst Plimsoll.
In a report entitled Why some companies fail while others prosper?, Plimsoll has rated the prospects of the industry's top 381 IT distributors and resellers (which cannot be named) as either 'strong', 'good', 'mediocre', 'caution' or 'danger', based on their financial strength over a four-year period.
Many of the 94 firms in the Danger category were hampered by a combination of bad debts and low margins according to Plimsoll.
The 160 firms that made it into the strong section were well managed, averaging eight per cent margins and delivering these largely debt free, said the report.
David Pattison, senior analyst at Plimsoll, said: "If the UK market tightens towards the end of the year, there is no doubt that the 94 companies in the Danger section will take the brunt of this downturn. They need to take action today."
Pattison said Plimsoll has been rating firms in this manner for 17 years, and so far 82 per cent of UK companies currently in receivership were rated 'caution' or 'danger' by the firm up to two years prior to their demise.
"The key message to resellers is that they can be successful, despite the current market conditions. The excuse that the market is the problem is dismissed by the 160 firms in our strong category that are succeeding," said Pattison.
"What sets some of these strong firms apart is that they don't have high levels of debt," he added.
Pierre Lams, co-founders of wireless and mobility reseller Handheld PCs, which is finding business profitable this year, said: "It's important for resellers to negotiate with manufacturers and vendors to secure margins that are realistic to enable their business to go forward. We are a specialist in the wireless and mobility space and have found firms like Symbian, Sony Ericsson, O2, McAfee and Orange, willing to be flexible in their pricing strategies with us. Vendors will be flexible if you can show them you are a good proposition."