Recession - Small businesses struggle in dire economy

According to the latest research from London-based business advisors BDO Stoy Hayward that was conducted by the Centre of Economic Business Research, one in 56 businesses will fail this year - an increase of 59% from 22,600 last year. In 2010, the news is not much better, with one in 50 - or 39,000 - expected to fail as the recession takes it toll.

While all sectors will suffer from an increase in business failures, those in construction and real estate will bear the brunt from the effects of the economic downturn. The report reveals that 3.2% of all businesses in the construction and real estate sector, or 10,300 firms, are predicted to fail. This is followed by manufacturing, where 2.3% of the sector -2,300 businesses - are expected to go to the wall.

Attrition

Nigel Tibbo, regional director at Jelf Insurance Brokers, commented: "We have seen an increase in businesses ceasing to trade as well as businesses being sold or going into liquidation." Commenting on whether or not other firms were reducing insurance expenditure, Tibbo said: "This is not changing for those with fewer than five staff but larger businesses are reducing estimates relating to items such as turnover, wage roll and annual carryings of cash." However, Tibbo added that there are opportunities to provide extra covers, such as that for employee fraud, directors' and officers' and extensions for theft and malicious damage.

Challenge

Brian Russell, chief executive at underwriting agency APC, has lived through four recessions and believed that the testing economy will mean brokers working harder to sell and that the "strong will become stronger". He added that businesses supported by friendly bankers in the good years will be tested severely. APC is seeing opportunities in the leisure sector as some of the larger insurers become more selective and Russell says that, in some areas, rates are increasing for renewals as much as 15% and that these will continue to filter through into the second half of this year.

Rate increases are not going to be welcome in the current environment and the Federation of Small Businesses said that one-third of its members have experienced increases already. Vincent Gardner, broking director at Reading-based commercial broker Finch Commercial, told PB: "Client loyalty is being tested as companies come under constraints and pressures. It is becoming more of a financial transaction than before, although we are holding our own by taking an up an aggressive broking strategy with renewals."

Gardner offered further hope; he remarked that the company is also working very hard on marketing and winning new clients: "It is a double-edged sword but it is easier to gain new enquiries."