Corporate insolvencies increased by 71% between July and September, a 40% jump from the same period in the previous year. With compulsory liquidations increasing to the highest quarterly number since the start of the pandemic, a business finance expert explains the steps business owners can take to avoid joining this statistic.

Lee Murphy, managing director of The Accountancy Partnership, says: “The latest insolvency figures unfortunately come as little surprise. Earlier this year, creditors were allowed to begin pursuing unpaid debts previously prohibited by temporary legislation. At the same time, 30% of small businesses warned that energy prices were their main concern and one in ten UK companies reported a moderate to severe risk of insolvency.

“As economic turbulence becomes increasingly difficult for business owners to manage, and an estimated 79,000 businesses unable to repay their debts alongside any further increase to interest rates, it’s concerning that corporate insolvencies are likely to surpass the 71% increase over the coming months.

“Given that contractors often work to tight margins and fixed price contracts and have recently had to contend with the cost of raw materials increasing due to lack of availability, it’s unsurprising that the construction industry has experienced the highest level of insolvencies (19%). This is followed by wholesale and retail trade (14%) and accommodation and food services (12%), all of which require a consistent supply chain to remain competitive and avoid passing their costs on to consumers.

“The industries that struggled the most throughout the pandemic, and had to fight for government support, are now also most vulnerable to insolvency. Unlike the pandemic though, the government hasn’t put equivalent mechanisms in place to help business owners combat the new challenges they now face. As a result, many are left with little opportunity to remain solvent.”

“Sadly, many influencing factors simply aren’t within their control, so company directors will need to do all they can to try and make sure they aren’t left in a situation where ceasing trading is their only option. Even simple changes, such as staying on top of bookkeeping so that it’s as up to date as possible, and regularly reviewing financial reports, can make a substantial difference to understanding where essential revenue may be going missing. By providing businesses with a true picture of what’s happening in their accounts, it allows owners to assess where they can cut back, if it’s necessary to increase their prices, and whether they should seek professional guidance. If business spending is essential, owners should also ensure that they’re claiming all allowable expenses, such as vehicle costs, tools and equipment, and travel expenses.

“This is a concerning time for UK businesses, so it’s crucial that directors take advantage of the resources available and seek support from accounting professionals at the soonest point possible. As 83% of SME owners are concerned about their finances, taking these steps towards insolvency prevention isn’t just key for the health of the small businesses that sit at the heart of our economy, but also for the long-term mental health of their owners.”