Professional services firms – sometimes considered the safest and most stable types of business – actually have the highest risk of insolvency of any sector in the North West of those tracked by insolvency and restructuring trade body R3.

New research from R3 shows that in November, almost half (48 per cent) of the North West’s professional services businesses – which include accountancy, law and consultancy firms – are at higher than normal risk of insolvency in the next 12 months.

There is now a clear gap between professional services and the IT and technology sector, the next riskiest sector monitored by R3, in which 44 per cent of businesses are at elevated risk.

It says that both sectors contain innovative, early stage-businesses, however many professional services practices are sole practitioners whose business models may be more dependent on a smaller number of customer contracts, and hence more exposed to market volatility. New technology and the need to keep pace with a changing business world also add to the challenges in these sectors.

Paul Barber, North West Chair of R3 and a partner at Begbies Traynor, said:

“The figures clearly indicate that professional services firms are starting to feel the impact of disruption. New technology is reducing demand for skills in some areas, while new private-equity backed business models are challenging the old, partner-led firms. Meanwhile clients are becoming more demanding, and quicker to claim in the event that things go wrong.

“Of course many firms continue to be very successful but may be finding it harder to sustain their profit levels, and are restructuring teams or trying out new employment models in an attempt to keep up.

“Professionals have long been trusted advisers to business, and the risk is that the current changes could result in the loss of valuable expertise and personal service.”

R3’s figures show that in terms of sectoral risk scores, construction came in third place with 42 per cent of businesses at elevated risk, followed by agriculture (40 per cent), transport (39 per cent), retail (36 per cent), manufacturing (35 per cent), tourism and hotels (both 33 per cent), pubs (30 per cent) and restaurants (29 per cent). Overall 42 per cent of businesses in the North West are considered at elevated risk of insolvency in the next 12 months – equivalent to almost 159,000 firms.

Paul Barber added:

“In the current climate of uncertainty, these are risky times for all businesses. Managers need to be alert to signs of distress and engage expert help at an early stage to give themselves the best possible chance to refocus the business.”

The figures are from R3’s latest retail insolvency risk tracker, which is compiled using Bureau van Dijk’s ‘Fame’ database and measures companies’ balance sheets, director track records and other information to work out their likelihood of survival over the next 12 months.