Company insolvencies – don’t get caught out!

22 Apr 2022

Paul Brown Tax Partner at WR Partners

By Paul Brown, Tax Partner

There has been a thought for some time that the fallout from the Covid pandemic would lead to a wave of company insolvencies as the support provided by the government while restrictions were in place is withdrawn.

In fact, this wave has been somewhat more delayed than many expected.  However, the Insolvency Service has just announced there has been a significant spike in insolvencies in March this year, a 39% increase over the figures in February and a 34% increase on March 2019, the last comparable period before the pandemic.

This may of course be no more than a blip but equally it could be the start of an upward trend. Either way it serves as a timely reminder for business owners to make sure they are on top of their numbers. 

At the same time research published by Begbies Traynor suggests that as many as one in four SMEs in the UK will struggle to cover payroll costs from April of this year. This is being driven in large part by increasing wage costs generally and also because of the increase in National Insurance from the start of the current tax year.

It is interesting to speculate how many of those businesses which now find themselves facing challenges around payroll costs and indeed the risk of insolvency, were going along quite happily thinking “there’s cash in the bank so we must be fine” only for a large bill to hit them out of the blue.  Many will certainly have been profitable but have failed because they simply ran out of cash – perhaps because of delays in collecting debts or the failure of a large debtor.

Cash in the bank is not always a reliable measure of the financial health of a business as it may mask the fact significant liabilities are coming down the line which can put pressure on those cash balances.  Having a clear understanding of future cashflows can allow a business owner to make clear informed decisions about cash commitments and take remedial action well in advance to ensure those cash pressure points don’t become terminal.

Proper cashflows can only be prepared in a meaningful way if the management information required to effectively run the business is up to date and robust.  This will include both historic information available on as close to real time basis as possible along with well thought through and realistic forecasts of future performance. 

With the advent of cloud accounting it continues to be surprising how many business owners and managers do not have a clear sense of how their business is performing and visibility of future bumps in the road as far as cash is concerned.  In the good times many will get away with this because the business is generating sufficient cash to absorb those bumps.  However, when times are tougher the risk of being caught by surprise is much greater and the ability to absorb those unexpected shocks much lower.  Taken together this can be a lethal mix.

The message?  It has never been more important to have direct access to the key information that allows business owners to make effective decisions and deal with risks before they turn into live issues.  If you cannot put your hand on your heart and say that you have that information at your fingertips, then the time to act is now. 

At WR Partners, our tax advisors can help you to put your business in the best possible place to deal with current issues and future risks. Email us for a free conversation at

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