38,000 firms ‘at risk’ of collapse

MORE than a third of the 100,000 business assessed in a survey are at risk of collapsing.

The figures also show that so far this year over €1 billion of unpaid debt has been left behind by companies that have gone into liquidation.

Businesses are now facing the toughest struggle of the year as they face into the winter months, a time when most failures occurs.

The study from company records agency, vision-net.ie, found more than 38,000 or 36% of Irish companies are classified as “high-risk” and showing signs consistent with business failure.

High-risk businesses are those that are performing badly on a number of key business ratios such as deteriorating liquidity, reduced or negative cash flows, lower sales or profits, over reliance on debt versus equity, significant interest repayment burdens and poor stock control.

Managing director of vision- net.ie, Christine Cullen said: “Our findings show the stark reality of what is happening in the real economy. Our risk model is signalling that over 38,000 companies who appear to be normal are in fact in trouble. These companies are highly likely to be unable to meet their trading and financial commitments.

“The risk model also indicates that the number of companies going into liquidation rises sharply towards the final months of the year. 30% of company failures in both 2009 and 2008 occurred in the period October to December.”

The study, which was conducted over an 18 months, also found that 17% of firms are considered medium-risk.

There has been a shift in high-risk companies towards the hospitality and restaurant sector, reflecting the struggle to reduce relatively high overheads at a time of reduced demand.

“Thousands of suppliers who are owed money by companies are now left battling it out at creditor meetings fighting for a share. If they are lucky, the likelihood is that they will only receive a small fraction of the money which is owed to them,” said Ms Cullen.

In a sign that firms established in the boom time are most at risk the figures show companies set-up within the last ten years are facing the greatest trading difficulties. The average age of a company in the high-risk category is 9.73 years.

On average, 185 companies each week are going into liquidation.

“Our message to businesses, particularly small and medium sized companies, is to stop and access risk before making a decision.

“This approach will help you identify the slow or bad payers, reduce the risk of bad debts and avoid the fall-out of liquidations,” said Ms Cullen.

So far this year 1,123 companies have gone into liquidation with the construction, finance services and the retail sectors the hardest hit.