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British businesses battle back from the brink of bankruptcy

Manufacturers demonstrate strongest resilience in bouncing back from the brink of bankruptcy

A study analysing approximately 44,000 businesses across the UK that were on the brink of bankruptcy in 2006 reveals that almost two-thirds (63 per cent) survived one of the most turbulent periods in economic history.

The analysis, published by Experian, looks at how these businesses fared between 2006 and 2011, and reveals that half (50 per cent) of the businesses that survived, managed to turn their business fortunes around and  significantly improve their overall financial health.

Financial health is measured by a score that combines numerous financial measures such as revenue, profitability, liquidity, gearing, cash flow and trends over time.

Approximately 44,000 businesses were identified as having a significant risk of bankruptcy within 12 months as of January 2006; Experian’s analysis highlights the characteristics of those businesses that survived.

Despite the volatile economy, approximately one in eight (13 per cent) businesses increased their employee base as well as significantly improving their overall financial health while just over a third (37 per cent) improved the financial performance of their business whilst either maintaining or reducing the number of employees. Overall, 36 per cent of businesses that were close to bankruptcy in 2006 went on to increase their number of employees over the next six years.

The analysis emphasises how a business’ survival rate from the brink of bankruptcy is very much aligned to its size.  Overall survival rates increase the bigger a business gets.

A business with one employee has the survival rate of just 58 per cent compared to 80 per cent for businesses with more than a 100 employees.

This is likely to be down to smaller companies finding it easier to wind themselves down, whilst larger businesses, with bigger overheads have the greater flexibility to reduce costs by laying off staff.

However, if a micro business does survive, it is more likely than any other business size to transform itself from the brink of bankruptcy to excellent financial health. The following table gives a breakdown of how businesses struggling in 2006, turned their business around by 2012 split by the number of employees.  Overall, Experian’s analysis clearly shows that while a larger business is more likely to survive tough times, it is also more likely to be continuing to struggle six years later than a smaller company.

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