Financial Plans

Who said the recession was over? While many of Britain’s businesses appear to have weathered the storm and recovered, moving into new office spaces and expanding aggressively, others face much more of the same, with insolvencies and business bankruptcy the norm, most of these businesses are also opting for pre pack administration. It’s been a tough year for a variety of businesses in Britain, and new statistics suggest that in many ways, it could get worse.

Insolvency firm RSM Tenon recently announced that it expects personal insolvency levels to rise once again in 2011, setting a new record throughout Britain. The biggest problem area isn’t in the working class or other low-earners, but in Britain’s large middle class. Dubbed as a ‘middle class insolvency crisis’, an estimated 140,000 British professionals will file for bankruptcy in 2011.

The figures appear to be consistent throughout Britain, indicating a relatively uniform insolvency rate throughout England, Scotland and Wales. What’s remarkable about them, however, is the fast pace at which insolvencies are due to occur in the middle classes. While employment is growing, particularly for small to medium-sized businesses, available cash for employees is shrinking.

Some have pointed to irresponsible spending for this cash disaster, but it’s really more to do with the habits that were established in 2007, and in many cases even earlier. Personal insolvency is used for last-measure situations, and in this case is being used to account for three or four-year-old debts. It’s a similar situation in business, where long-term debts are only recently being accounted for.

For Britain’s small businesses, many of whom are owned and operated by less than five people, the increase in personal insolvencies could cause a subsequent wave in business closures. Lower retail spending has hit many of Britain’s businesses hard, particularly those that are forced to survive on a relatively limited cash flow source.