Exclusive: ‘Covid papered over many cracks which gave firms a false positive’, warns Leonard Curtis CEO
City PM reported recently that millions of people across the UK are now struggling to make ends meet, with only one in ten saying they don’t have any financial concerns.
And it’s not just individuals that are struggling: Rising bills are the biggest worry for UK businesses, with many concerned about the spiralling cost of energy, resulting in a wave of restructures and some firms even being forced to close altogether.
To discuss this worrying trend, City PM sat down with Daniel Booth, the CEO of Leonard Curtis.
With 270 employees working across 21 offices in the UK and the Channel Islands, Leonard Curtis is the largest privately-owned professional services provider of corporate restructuring and insolvency in the UK.
A recession is looming, businesses are struggling, the job market is tight. It must be a very busy time for you?
It is getting busier for us, but that is benchmarking from where we were during Covid, so we have not started to see the full effects yet. Recession is definitely looming and companies are starting to come to us with different concerns around cash flow and creditor management.
“The Bank of England’s latest interest rate rises to counter inflation are understandable – they might help us avoid a longer, deeper recession – but they will add to pressure on business owners.”
Daniel Booth
However, we are also still seeing quite a bit of creditor forbearance, in spite of restrictions being lifted in April, so that helps beleaguered directors a bit, but the market remains tough, especially around energy prices. Businesses are trying to plan for increased costs and work out how easy it is, and if indeed they can, pass them on to customers. And this is where it is going to hit hardest. We talk a lot about director fatigue – it’s been a hugely tiring time with no let up for anyone.
In the months ahead, do you expect a tsunami of new clients?
Probably not a tsunami, but certainly a higher volume of businesses requiring support for a sustained period of time. Brexit, followed by Covid, has been tough on business owners.
“Covid papered over many cracks which gave businesses a false positive.”
Daniel Booth
And now we have got various geo-political issues going on affecting energy prices and destabilising the supply chain at a time when there is not much support around for business owners. So yes we think there will be a lot of advice needed in the next couple of years.
City PM reported recently that one in three small businesses may collapse if it does not get access to fresh funding. Is getting access to loans and funds something many of your clients are struggling with?
Part of the reason we have this problem now is that it has been too easy to get cash in the last two years and businesses have spent it a bit too easily. So undoubtedly banks are more cautious now with lending and focusing on how they will get it back, and of course alarming stats about non-repayment of CBILs does not build confidence around fresh lending.
“We don’t think access to cash has been that difficult, but we are benchmarking it now on how easy it has been in the recent past.”
Daniel Booth
Just 18 months ago you could secure £50K in a matter of hours. There is a reason why you can’t do that now. We are now back to as we were pre-Covid, where you have to work a bit harder to get funding and be aware that if you can’t pay a bill, or a supplier, or your staff, there are consequences. It was a bit too easy for too long.
Meanwhile, insolvencies are skyrocketing, restructures are made in practically every industry: what will 2023 bring, do you think?
What we anticipate as a minimum is for insolvencies to end up at pre-pandemic levels volume wise, although many people think it will be more than that. And it will be across all sectors. If you consider average numbers of insolvencies pre March 2020 were around 16-17,000 per annum, we think that could break 20,000. We know there are a lot of businesses that are not in great shape and if you are not ready to react to this latest round of challenges 2023 will not be a good year.
“What we have noticed is that in the last 24 months people have zoned out and ended up in a place which is not the norm, but very much feels like it.”
Daniel Booth
So they have become complacent and are taken aback now by having to pay bills, satisfy HM Revenue, start repayments on loan schemes. Those that will recover will be the business owners who have got a decent business and a proper understanding of the numbers and their place in the market. These people know what is going to happen as everything goes back to normal and they will be looking after their biggest assets – whether that’s people in our case – or major manufacturing plant equipment. For others there will be a continued rude awakening.
What should not be under-estimated is the resolve of the UK economy and business community. Often times are difficult but we can, with the support of others around us, get through to more positive times.
Zooming in on your business, what are some of the market challenges you are currently facing?
For a sustained period of time where the Government quite rightly supported businesses and removed the legal consequences of not paying liabilities UK insolvencies were at an historical low. Although this support has now been withdrawn it does take time for the process and rhythm of the market to start again.
And in that restart is our next challenge, which is about quality resource, the people and experience to support distressed businesses. We tried very hard during Covid to make sure we retained our people. Our furlough numbers were low – less than 5 per cent – those were people who could not do their job at home – and only lasted a couple of months or so.
Everyone else – some 200+ employees – remained with us and we made sure we did our annual salary reviews, paid bonuses as before and redistributed the Christmas Party money when we could not meet in person!
We took the view that by sitting it out and carrying the cost base for more than we needed at the time, that we would be in a good place to meet the demand for our services, now and in the future.
Finally, looking ahead, where do you see opportunities for growth?
The growth will come from the general market conditions improving and maintaining and increasing our own share of that market. We operate across three service pillars. As well as turnaround and restructure we have a large funding division and a growing legal business, so we are looking at expansion and acquisitions in these areas and thinking about bringing in complementary services like M & A and tax consultancy. We are very focused on finding and retaining good people and ensuring we do a decent, honest job for those who refer work to us so we continue to be recommended. The plan is to double revenues to £50m in the next three years.