The number of companies going out of business rose by 26% year-on-year in the three month period between July and September, with 4,001 firms going into liquidation.
The results represented a jump of 10.5% on the previous month which the Insolvency Service blamed on "a toxic combination of markedly slowing demand, elevated input costs and very tight credit conditions".
In the light of this, The Institute of Chartered Accountants in England and Wales (ICAEW) is urging business owners to look out for the most common signals that their business may be in serious trouble, and to apply the same criteria to customers and suppliers.
Clive Lewis, head of SME issues at ICAEW, is likely to be in trouble if it is unable to pay debts when they are due, a creditor starts legal proceedings for non-payment, the value of debts exceed assets or wages can't be paid on time.
"Although it can be difficult to know exactly when your businees is insolvent, there are several warning signs that should make alarm bells ring," he said.
ICAEW suggests companies pay particular attention to the following signals:
- When the numbers don't add up: if you are constantly pushing against your overdraft limit or you have no funds in the bank to pay suppliers and staff
- When you're on a slippery slope: if you are gradually falling further behind with payments to your creditors, routinely pay on final demand or only once legal proceedings have started
- When you can't face the creditors: if you have started to do all you can to avoid taking phone calls because you know it might be from somebody you owe money
- When your gut feeling tells you something is wrong: you are the person who knows your business best and if you feel something isn't right, you are probably right. This could include if you don't feel like going to work, aren't making money, feel there is increasing pressure or don't enjoy it any more
"Your suppliers and customers are likely to be in the same tough situation as you, so it is critical to keep an eye on your cashflow and manage your debtors," added Lewis.
"We face prolonged tough times, so it's worth investing some time and effort in getting your business in shape now.
"An early conversation with a chartered accountant or qualified insolvency practitioner might help get the business back on an even keel. This might be preferable to a long drawn-out decline."