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More firms facing financial 'distress' as SMEs bear brunt of struggles

The number of British firms facing significant financial distress has risen for the 13th consecutive quarter, with SMEs bearing the brunt of the pain.

Fourth-quarter data from insolvency experts Begbies Traynor shows that 276,518 businesses finished 2016 in a state of distress, an increase of 3% compared with the same period last year.

The group's Red Flag Alert, which monitors financial health, also revealed that 91% of the firms are SMEs. Nearly a quarter, or 23%, of the country's struggling businesses were in London, where 64,764 companies finished the year in a state of financial distress, an increase of 5% on the same period in 2015.

Julie Palmer, partner at Begbies Traynor, said: "The scale of SME distress at the end of 2016 just goes to highlight the fragility of UK micro businesses, many of which are underfunded, lack management experience or are flawed in concept.

"Although record numbers of new start-ups continue to join the economy each year, a large proportion don't stay in business for long, with growing numbers of aspiring entrepreneurs returning to more established businesses as soon as the opportunity arises."

Begbies Traynor flagged that the number of UK company incorporations is growing at its highest level since the start of the financial crisis, with more than 685,000 start-ups joining the economy during 2016.

But it added that many of these start-ups are short lived "lifestyle businesses" often forced upon people by changing circumstances, such as the loss of employment.

Ric Traynor, executive chairman of Begbies Traynor, said: "It is too early to say that this is reflective of an underlying problem that is likely to continue or negatively impact 2017, as numerous macro indicators suggest that the new year has got off to a reasonable start.

"EU exit negotiations and US trade policy could be major factors affecting business this year either for better or worse whilst rising inflation and fluctuating exchange rates are likely to have a negative impact. Either way, 2017 could well be a defining year for UK business."

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