By Paul Williams, above, Partner at PKF Littlejohn Advisory
As the UK economy grapples with persistent inflation, geopolitical uncertainty, and domestic financial pressure, business leaders in retail, hospitality, and construction are facing a pivotal moment. While the latest government data for Q1 2025 from the Insolvency Service reveals that 1,992 companies entered insolvency – a 2% decrease compared to February, it’s not yet a signal that businesses can breathe easy.
The calm before the storm?
This marginal dip in insolvencies comes at a time when macroeconomic signals remain mixed at best. The Consumer Prices Index (CPI), including owner-occupiers’ housing costs, rose by 3.4% in the year to March 2025 – a slight decline from 3.7% in February, but still a clear indicator that inflation is far from subdued. The cost pressures weigh heavily across sectors, particularly those sensitive to consumer confidence and disposable income, such as retail and hospitality.
Retail businesses have been navigating tight margins as inflation eats into household spending. While footfall in some high streets has held steady, actual spending is sluggish, and price sensitivity among consumers has rarely been higher. Hospitality, still recovering from the aftermath of pandemic-related disruption, is now squeezed by wage increases, higher employer National Insurance contributions, and mounting food and energy costs. Meanwhile, the construction sector faces delays and budget overruns, in part due to volatile material costs and ongoing labour shortages, exacerbated by supply chain disruption.
Against this backdrop, the insolvency data may mask deeper structural fragilities. The fall may reflect temporary deferrals or support measures rather than true business health. As such, the resilience of businesses in these sectors depends not on short-term stats, but on long-term strategic thinking.
Cash flow is King
Cash management is emerging as the single most critical area of focus. While inflation and geopolitical unpredictability are outside a company’s control, internal processes – particularly credit control, debtor management, and supplier relations – have the ability to make or break a business in 2025. These are the very operational levers that restructuring professionals assess when evaluating a company’s viability, as cash flow issues are often the first warning signs of potential insolvency.
Late payments, especially in the construction sector, remain a systemic issue; a delayed invoice or missed payment can cascade into supplier defaults and stalled projects. In retail and hospitality, misaligned cash flow can jeopardise inventory procurement or staff retention, leading to service disruptions and reputational damage. Boards must ensure that invoices are chased promptly, suppliers are paid strategically, and every department is functioning at near-optimum efficiency to avoid sliding into financial distress.
Strength in agility and foresight
Uncertainty has become the new normal, amplified by the unpredictable stance of the US administration and its ripple effects on global trade. For UK businesses, particularly those reliant on international supply chains or export markets, this volatility demands urgent reassessment of credit arrangements, cost structures, and contractual exposure. These pressures are not just operational; they increasingly signal the need for restructuring strategies that protect against worsening financial conditions.
For businesses approaching distress, agility is not just a competitive advantage – it’s a survival mechanism. Boards must demonstrate strong governance, with clear oversight of cash flow, liabilities, and covenant compliance. Investors and lenders alike are now scrutinising businesses for evidence of proactive risk management and credible contingency plans. Restructuring professionals can help develop these, guiding businesses through scenario planning that addresses key questions: What if borrowing costs rise further? What if inflation remains entrenched? What if geopolitical tensions trigger a demand shock?
By building in restructuring options early, whether through informal turnaround plans, refinancing, or preparing for formal insolvency routes, companies give themselves the best chance of navigating whatever comes next.
Restructuring as a Strategic Response to Risk
While the broader economic climate remains uncertain, periods of instability can also create opportunities for strategic restructuring. For some businesses, particularly those in retail, hospitality, and construction, adapting early – through operational streamlining, renegotiated supplier agreements, or revised business models – can be the difference between survival and insolvency. In sectors under pressure, initiatives like integrating e-commerce platforms, reducing fixed overheads, or shifting to more flexible staffing models may help unlock short-term resilience and help develop long-term value.
However, for companies already facing signs of financial stress – such as mounting debts, declining margins, or persistent cash flow shortfalls – early engagement with restructuring professionals is essential. Insolvency practitioners and turnaround specialists can help stabilise the business, preserve value, and, where necessary, manage formal insolvency processes in a way that protects core operations. In many cases, what begins as a crisis can be converted into a managed recovery, if decisive action is taken early.
Conclusion: Cautious optimism
While the recent drop in UK insolvencies is a welcome development, it must be viewed with cautious optimism. The headline figure masks the ongoing fragility in key sectors such as retail, hospitality, and construction – industries that continue to wrestle with inflationary pressures, supply chain volatility, and the unpredictable global backdrop shaped in part by the shifting posture of the US administration.
For many businesses, particularly those already managing tight margins or inconsistent cash flow, the real work is just beginning. Safeguarding a business in 2025 requires more than weathering short-term challenges – it demands a proactive approach to financial health. That includes robust credit control, disciplined cost management, and a willingness to re-evaluate legacy operating models. Company leadership should not wait until cash flow issues become critical; early intervention is key.
This is where restructuring strategies become essential. Companies that embrace restructuring – whether through informal operational changes, debt renegotiation, or formal insolvency mechanisms such as administration or Company Voluntary Arrangements (CVAs) – can create breathing room and realign their business for long-term sustainability. Restructuring is not an admission of failure; in the current environment, it is often a smart, forward-thinking move.
Ultimately, cautious optimism is justified. But only for those businesses willing to act early, seek advice, and take control of their future. For those that do, 2025 may still offer a pathway to resilience, renewal, and in some cases, growth… even amid adversity.