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Company Administrations Lowest Since 2005

Headline: Company Administrations Lowest Since 2005

As the economy warms up and confidence grows amongst the business community and consumers alike it is always nice to receive fresh news that further supports that confidence and dispels any thoughts we may be facing a false dawn.

Recent figures on company administrations and bankruptcies have therefore been welcomed as further indicators that we have indeed left the recession behind and can look forward to some welcome growth in the coming months.

Company administrations are now at their lowest levels since 2005 and, in the second quarter of 2014, volunary liquidations were 18.1% below the same quarter in 2013: their lowest level since 2008.

These figures are definitely good news and only the very cynical might add that these reductions are perhaps because we are just running out of businesses to go bust. However, there is a certain element of truth in that remark as all recessions can be regarded in some ways as market spring cleaning. Lean, agile businesses tend to survive, or alternatively businesses become leaner and more agile as a survival strategy. The less responsive, and so weaker, businesses fail. There are exceptions of course, but in general that is how it works.

Ray of SunshineJust to rain on the parade a bit more, another concern is the low interest rates. There is a strand of thought that says that, because interest rates are so low, weaker businesses have been able to survive longer as debt repayments have also been lower.  Future rate rises, already mooted by the Bank of England,  are therefore a real threat and we may see more failures as the interest rates rise, as of course they will have to before too long.

Just looking for a silver lining on this cloud, it could also be argued that the low levels of lending to small businesses in recent years may make this much less of a problem than it might have been otherwise. Certainly, it looks like future rises will be in small increments anyway, so hopefully that will create time and space to deal with the new financial pressure as it develops.

Another cloud on the horizon is raised in a recent study by Zurich, the insurance business, which has found that a full 10% of UK small and medium sized businesses had considered closure as a real option in the previous three months. This is a good indicator that many businesses are sailing closer to the wind than is ideal, however it is not clear what allowance has been made for the number of small and medium sized business owners that would be contemplating closure no matter what the economic weather is.

From a low point in 2009 / 2010 new business starts have been on a steady rise, overtaking a 2007 peak in 2012 and continuing to rise. This is a mixed picture again as many of the new businesses have been started as an alternative route to employment. However, new business starts are notoriously prone to failure. If the large number new starts are factored into the equation, then the low figures for business failures start to look even better and any concerns about zombie businesses just waiting for interest rate rises before failing, look alot less worrying.

Conclusion?

Its positive folks – a definite glass half full scenario with some good grounds for cautious optimism. There really is nothing to worry about, except interest rate rises, chaos in the middle east, a new cold war with Russia, the risk of blackouts this winter because of fuel shortages, fuel price rises,  the dismantling of the United Kingdom and a hung parliament next year.

Happy holidays.

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