South East: Professional services at 'increased risk of insolvency'

The proportion of professional services businesses (lawyers and accountants) in the South East at greater than normal risk of insolvency is the highest of any part of the UK, at nearly half of all companies in the sector (47.6%).

This figure has increased month on month since May 2017, and rose by 9.5% between January and February 2018, according to new research by restructuring and insolvency trade body R3, compiled using Bureau Van Dijk’s Fame database. This equates to over 4,900 firms.

The pubs sector also saw the proportion of firms within it at higher than usual risk rise by 9.5% between the first two months of 2018, with just over a third (33.5%) of pub companies in the South East now falling into the elevated risk category, up from 30.6% in January.

The research highlights that along with professional services, technology and IT, and construction are the three sectors with the greatest proportion of firms within them at above average risk.

The technology and IT sector’s 6.3% increase since January 2018 puts its level of firms at elevated risk of insolvency now at 47%, whilst construction saw an increase of 7.7%, to reach 41.3%.

Mike Pavitt, chairman of R3's Southern Committee and partner and head of the corporate restructuring and insolvency group at solicitors Paris Smith, added: “As demand for professional services grew over 2017, many firms scrambled to keep pace, and implemented new systems and technologies to try and make efficiency gains, which have added costs in the short term,

“Professional services are now a lot more commoditised than in the past, with fixed prices leading to lower revenues in many cases, and with greater competition for business. For example, law firms which focused on personal injury claims are now finding it harder to make a profit; the ongoing reforms of cost caps look set to make it uneconomical for most solicitors to pursue road traffic accident claims for clients.

“As well as all this, firms have been dealing with disruption due to ever-changing regulation, pension provision, taxation and the ability to retain non-resident workers against the backdrop of Brexit. 

“Even so, for professional services firms with a clear sense of identity and purpose, this market adjustment presents a number of opportunities.

“Business owners and directors across all sectors are advised by R3 to continue to monitor their finances carefully, plan for all foreseeable eventualities, and keep careful records of their decision-making processes including the evidence upon which those decisions are based. It is vital to remain alert to signs of trouble, which requires high quality data to be available to management, and to be ready to adapt to the changing economic landscape.

“If in doubt, receiving professional advice from qualified and regulated restructuring specialists as early as possible will help to maximise the options for a business and to ensure that greater value is preserved and enhanced.”