Will 2023 be a year of administrations?

Michelle Elliot, Partner in FRP’s Restructuring Advisory Glasgow office, shares an insight into insolvency predictions for the year ahead, while offering a helpful guide to take early action.

Looking ahead, the concern is that the economic challenges of 2022 – ranging from input and wage inflation through to supply chain delays and labour shortages – will manifest themselves in more finite ways next year. Namely in an increase in business insolvencies.

Notably, across the UK, Administration appointments increased by 6% over the past year, which indicates distress and cash flow pressures in medium and larger size trading businesses. In short, insolvency data points to the reality of on the ground inflation negatively impacting margins and throwing into doubt historically sound business models.

Looking at longer term trends, our own modelling suggests that the level of insolvencies has been consistent throughout the year, with around 5,500 taking place every quarter in England and Wales. The same can be said for Scotland in terms of consistency, at around 2,000 cases per quarter. With interest rates rising and inflation yet to peak, there is the very real prospect that current conditions will increasingly eat away at business confidence in 2023.

Consumer and public spending are likely to be limited in 2023 at a time when businesses will need to continue servicing the emergency loans provided by the government during the pandemic. As a result, strong management teams and lenders will be critical in the months to come. To avoid a scenario where recovery plans are undermined by unsupportive lenders, business owners will need to develop a clear plan for the year ahead. We recommend using the time now to plan for a range of scenarios, bearing in mind that the OBR is forecasting that the current recession – albeit shallow – will last for the duration of 2023.

It’s for this reason that we’ve prepared our guide to help management teams to take early action and defuse the inflation time bomb. The guide covers:

  • How to approach reducing and managing costs strategically to strengthen your business and give you the best outcomes.
  • Passing on cost whilst maintaining supplier relationships.
  • How to take control of the costs of the goods and services in the face of rising prices by fixing and locking in costs.
  • Your immediate action checklist, covering the essential actions you should take now to tackle inflation.

You can download the guide here: https://go.frpadvisory.com/inflation-strategies

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