The number of UK businesses burdened with significant financial difficulty, though not formally insolvent, rose more in the first quarter of 2005 than in any quarter last year.
Over 116,000 companies reported serious financial troubles in the first quarter, nearly 7% higher than the first quarter of 2004, business restructuring firm Begbies Traynor found.
"If significant problems are tackled early enough, much can be done to improve their outlook and obtain a better result for all of the stakeholders," said Nick Hood, senior London partner at Begbies Traynor.
"Only by tackling each area, such as financing, marketing, staffing and service can a business realistically be turned around."
On the positive side, the report found that London businesses appear to be in better health than those across the rest of the country.
While the 4,800 Capital businesses experiencing significant financial difficulties is a small rise from the number reported in the final quarter of 2004, it represents a 36% drop from the same period last year.
The service sector produced the largest percentage of firms in financial trouble at 34%. Some 22% of engineering firms reported difficulties followed by wholesalers/retailers at 15%, construction at 12% and IT firms at 4%.
"Some [indicators of businesses in trouble] are obvious, like a weak cash position and mounting debts," Hood added. "Others are more subtle, such as late filing of accounts.
"In benign economies, like the UK's at the moment, with low interest rates, unemployment and inflation, many marginal businesses can survive for surprisingly long periods."
The Department of Trade & Industry (DTI) is due to publish its Quarter One 2005 insolvency statistics tomorrow.
