Fewer firms in crisis, but challenges remain for customer-facing sectors

The economy is showing "real signs of recovery" although consumer-facing businesses are struggling the most.

The latest Red Flag Alert Survey from corporate recovery specialists Begbies Traynor has shown a marked decrease in businesses in Devon and Cornwall encountering difficulties.

The Begbies survey, which monitors the financial health of the corporate UK, shows between the last two quarters there was a 12% decrease in the level of 'combined' distress – businesses categorised as experiencing either 'significant' or 'critical' financial problems.

In its snapshot of how Devon and Cornwall businesses fared between the third and fourth quarters of 2012, Begbies found that the rate of increase in Devon companies facing significant problems had slowed to 4%.

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Meanwhile Cornwall has fared better still, with a 3% decrease.

The health of key sectors including construction, real estate, transportation and logistics, tourism and food and drink manufacturing all show "marked improvements" across in both counties, said Begbies – mirroring a national trend. But consumer-facing industries told an altogether different story.

Bars and restaurants in distress in Devon and Cornwall showed an increase of 92% and 84% respectively, while general retailing in Devon continues to struggle, with an increase of 55% in businesses with significant problems.

Ian Walker, partner at Begbies Traynor's Exeter office, said: "It is clear that in Devon and Cornwall at least, we are looking at significant falls in the number of businesses becoming involved in insolvency procedures.

"This is partly because the weakest companies have already been shaken out, with a knock-on benefit to those that remain, and partly due to a reduction in the numbers of actions being taken by creditors against 'zombie' companies.

"The emergence of a two- speed economy, however, is worrying.

" It is clear to us at Begbies Traynor that the sheer scale of the challenges facing the consumer economy, particularly in the run-up to Christmas, continues to feed through to discretionary spending. This is likely to get worse in 2013.

"We still see businesses continuing to fail, even at this stage, through what can only be described as poor management," he added.

"There have been multiple failures of some car dealerships in our area, for instance, which have been caused by issues which could and should have been addressed early on – accounting practices, staffing levels, and customer service failures."

Mr Walker added that Begbies' Exeter office has had "some success" in rescuing businesses in the leisure industry however, saying these will now be "much better placed" to survive the next 12 months.