The number of insolvencies in the pub, restaurant and wider leisure sector increased by 8.6% in May against the same month in 2011, according to the latest insolvency index from Experian.
There were 151 insolvencies in the lesiure & hotels sector, which includes pubs and restaurants, in May, the new figures show.
However, the “financial strength” score, which predicts the likelihood of business failure in the next 12 months, of the sector increased against May 2011. The industry’s score was 82.62, up from 82.02 in May 2011, with 100 being the least likely to fail.
In addition, the proportion of business failures remained the same at 0.16%.
Meanwhile, the financial strength score of the brewery sector also increased from 84.98 to 85.52. There was one insolvency in the sector in May, against none in May 2011.
Overall, the figures show that business insolvency numbers remained stable in May, with 1,841 firms, 0.09% of the total business population, failing last month. This is the same rate as May 2011, but slightly more than in April 2012.
The increase from April was largely due to smaller firms running into difficulties. In particular, firms with six to 10 employees saw their rate increase from 0.17% in May 2011 to 0.2% May 2012. This was the first time1 that firms in this size-band had experienced the highest rate of insolvencies of all, compared with their larger and smaller counterparts, Experian said.
The average financial strength score of firms remained stable compared to the previous month (April), at 83.65. This also represents an improvement from May 2011 when the score was 82.92.
Max Firth, UK nanaging director for Experian’s Business Information Services division, said: “By the time a firms grows to six to 10 employees, the flexibility it benefited from as a micro business begins to disappear. Fixed overheads become greater and cash flow starts to cause more serious issues if not carefully monitored.
“Our data has shown that historically, the highest insolvencies have consistently been experienced by firms that have between 10 and 100 employees. If a good credit management process is not implemented before reaching this size, then a firm may find it significantly harder to keep its head above water as it grows.”