Early action, better odds: Why UK businesses must act before it’s too late
UK businesses are struggling through the fast-paced nature of rapid economic changes.
From the fallout from the Russian invasion into Ukraine to risks resulting from Trump’s tariff war – there has been a lot of chaos for businesses.
Over the last week, President Trump’s tariffs (and U-turns) sent the world into economic turmoil. Managing director and co-head of restructuring at Kroll Sarah Rayment explains: “The outlook for global economic growth for the rest of the year has become cloudy.”
She stated that until there is some clarity, “significant price volatility is likely to continue”.
Running out of room
Rayment stated events such as facility renewals, refinancing, litigation or market share changes are issues that could trigger some sort of action for a business.
She explained that a business’s ‘liquidity runway’, the amount of time it has before running out of cash, can be managed if it has a management team that is constantly on top of things.
But she was clear to businesses: the earlier you engage with advice, the better.
“The more likely prospect of being able to either restructure or save the business or reach an agreement with its stakeholders and creditors,” she noted.
Rayment added: “Am I going to have to refinance? Am I going to have to bring some new equity in? Are there any parties that will provide additional funding to finance the company? Or is this just a blip?” she explained.
Certain sectors are feeling the squeeze
Recent figures from the Insolvency Services showed more than 2,000 companies filed for insolvency in February, up three per cent from the previous month.
Compulsory liquidations have reached their highest level since 2014.
Administration is one procedure that aims to rescue a struggling business through restructuring.
Rayment said we”didn’t see the number of increases in administrations as we might have expected.”
She described the reason for this as “a lot of liquidity out there.”
“While cash is out there, banking may not come at the same rates as before; it will probably cost you more and be more expensive.”
She noted that a good business will be able to refinance or add some more leverage to its balance sheets.
However, margin squeezes and external factors particularly impact some sectors, such as construction, retail, manufacturing and hospitality.
While the likes of the recruitment sector are struggling, with administrations up by over 50 per cent. She explained this was the result of Rachel Reeves’ tax-raising Budget, which led to hiring freezes and reductions across industries and impacted recruitment firms’ profitability.
However, recent economic turmoil has thrown a spanner into business plans, as Rayment explained that M&A activity will likely halt or slow down.
“That said, companies with US exposure may appear riskier to potential buyers, meaning international acquirers could prioritise deals in their own regions and in the UK, which could be good news.”
“But a liquidity crunch remains on the horizon for some businesses that are already under stress,” she added.