More than 1,000 small legal practices have ceased trading since this time last year, with that figure set to rise further, according to research published today.
Figures from professional services consultancy Begbies Traynor show that the number of small and medium-sized firms (SMEs) dropped 12% to 7,295 in the third quarter of 2013, which ends today, compared with the same time last year. The research defined SMEs as having fewer than 250 staff and a turnover of below £42m, excepting sole traders.
Nearly 200 smaller firms have gone bust since June, with the number in financial distress rising 26% to 2,314, the figures show.
Julie Palmer, partner at Begbies Traynor, warned that the number of SMEs going out of business will rise as the economy improves. She said: ‘Many SMEs run out of cash during the recovery phase, as there is a real temptation to over-trade in order to acquire new business.’
Palmer said the scrapping of the professional indemnity insurance deadline, which will no longer apply from tomorrow, has come ‘too little, too late’ to help small practices.
‘With pricing pressures squeezing margins, larger players increasingly targeting smaller clients and consolidation only proving to be an option for the lucky few, we are likely to see many SMEs fall at this final hurdle before ever benefiting from these latest reforms.’
She said firms should avoid costly expansion plans, focus on reducing their cost base and dependency on bank lending.
The Solicitors Regulation Authority has flagged 495 firms as being in financial risk , with the regulator to begin ‘intense engagement’ with 55 firms identified as being at high risk of financial instability. According to the regulator, the total number of firms in England and Wales was 10,951 in August, down from 11,115 in August 2012. Over the 12 months to July 2013, 914 firms opened, according to the regulator.