IT businesses are the fastest growing sector in the UK to have “critical problems” with their finances, according to a new report by insolvency firm Begbies Traynor.
The problem may reflect tightening budgets among IT directors at client firms, many of whom are under pressure from bosses to cut costs as the credit crunch bites.
But the number of IT firms affected was still below a number of other sectors, including construction, manufacturing, retail, and transport and communications, which were all hit badly by the current tough economy, according to the Begbies Traynor Red Flag Alert report.
The companies are judged as having critical problems when they have County Court Judgements totalling over £5,000, or winding-up petition actions. Begbies Traynor said that, based on previous research, about 15 percent of such companies would enter formal insolvency procedures in the next 12 months.
In the second quarter of this year, 113 IT firms faced critical problems, a 371 percent increase on the same period in 2007, and the fastest growing sector to experience the problems.
But in spite of the rapid growth, as a whole the IT sector experienced far fewer problems that construction, where 639 firms had critical issues. The IT companies with critical problems represented four percent of the total number of companies with that severity of problem.
Across sectors, 4,258 firms faced critical problems, compared to 542 a year before, an alarming near eight-fold increase.
Ric Traynor, executive chairman at Begbies Traynor, said: “In times of economic slowdown, you would expect the construction and retail sectors to suffer ... However, the statistics also show that many other industry sectors are being affected by the current conditions, and the gloom is certainly not restricted to those areas.”
He added: “Credit lines have dried up and companies which might have been supported by extended credit up to a year ago are now at real risk.”