One in 120 companies went bust in last year - but what's to blame?

One in 120 companies in England and Wales has gone bust in the last year, frightening new statistics from the government’s Insolvency Service show. The number of liquidations for the two nations in the second quarter of this year also rose since the three months before, and went up a frightening 39.1% since the same period in 2008.

The Insolvency Service reported 5,055 liquidations in England and Wales in this year’s second quarter – both voluntary and compulsory – a 2.9% increase since the quarter before.

The Forum of Private Business (FPB) has pinned the blame on a lack of bank lending to small businesses, pointing to Bank of England statistics that show a drop of £14.7bn in the same period in the cash made available to the sector.

Phil McCabe, spokesperson for the FPB, said: "At the moment, we are seeing apparently viable businesses of a certain size or industry sector labelled as ‘high risk' by some banks, which then refuse to lend to them, and others forced to pay a lot more for finance.”

However, a recent survey from the Confederation of British Industry (CBI) found differently, the Guardian reported today. It provided strong evidence that companies seeking funding were finding success – 27% of those questions said availability of credit had improved, while only 10% felt it had got worse. This was the first time an overall improvement had been reported since the CBI began its research in January.

This shows two things. Firstly, that the market is still confused over whether or not bank lending to small businesses has improved or worsened. Much like ‘expert opinions’ on the state of the economy – which from day to day or publication to publication oscillate wildly between predicting both certain signs of improvement and definite continuation of the downturn – reports of how much the banks are providing for the sector also conflict daily. At times like these, then, it is better simply to carry on in your endeavours to find finance with hope rather than being defeated by pessimistic news which contradicts and circles itself ceaselessly.

Secondly, the variations in outlook from two giants of the small business world – the CBI and the FPB – prove only that the reasons behind liquidation are manifold and complex. It’s not possible to blame one single cause for the increase in companies going bust. And, as an extension of that, business owners need to keep a more vigilant eye than ever on all aspects of their business – not just the profit margins, but also the costs, staff requirements, stock levels, sales, ROI of any marketing activity and all the other ingredients that make up an active company.

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