By Kirsty McGregor, Chairman and founder at The Corporate Finance Network, a group of financial advisers set up to help small businesses across the UK.

The British Chambers of Commerce have predicted that the UK economy will continue to grow in 2014 and the rate of growth will exceed that which was recorded before the 2008 recession. Many would perceive this as positive news, especially for smaller, young and fast-growing companies.

However, recent analysis indicates that 65% of UK SME’s have poor credit ratings (approximately 1.8m businesses). These figures demonstrate that if higher interest rates are implemented and a lower tolerance for company debt evolves then the economic recovery will in fact showcase the risk of insolvency for these businesses.

This analysis is a wake-up call for Britain’s numerous walking-wounded businesses who have survived the recession. These businesses now need to take action as they are still at high risk of being in financial difficulty.

The upturn heralds a new time when there will finally be a shake-up of the business world where those that invest will grow; but those who choose to carry on hunkering down, as they have over the past few years, will suffer an untimely demise.

This is typical of previous recessions, when the largest corporate insolvency figures occurred after the economy had returned to growth — a phenomena known as the ‘insolvency lag’.

A notable way of understanding the level of risk for British SME’s is to analyse their credit ratings. A staggering 65% of businesses have Delphi scores (Experian’s credit rating system) of above average risk, high risk or maximum risk.

These businesses are continuing to survive due to the continual support from HMRC, the banks and low interest rates. This is not enough for businesses to just rest on their laurels. The time is fast approaching where the artificial economy will come to an end and businesses with either turn a corner or fold.

Businesses can only improve their situation if they truly accept that they aren’t in the best place to grow. Typically warning signs for owners that their business is at risk from the upturn is if they are struggling to: pay creditors or HMRC within agreed payment dates; unable to get credit for even the simplest of agreements (e.g. leases for office equipment); and the most obvious sign is reported losses or a reduced gross margin.

There are three processes which SME business owners can take to ensure they improve their situation ahead of higher interest rates and less-forbearing lenders:

1) Undertake a strict review of the state of the business’s health, its productivity and profitability — be aware of your detailed figures, be willing to lose ‘top line’ sales if they aren’t producing healthy margins, and free up resources to target a better quality of turnover;

2) Build a plan for growth — review the businesses current working capital cycle and identify requirements in the coming months and years;

3) Be brave and be prepared to take action! Alternative solutions, finance facilities and restructuring plans are all readily available in this market, both for strong businesses and also those in trouble. However, leaving it too late will reduce the options which are available to you.

SME business owners need to be aware and understand that the economic recovery is the time to initiate an action plan aimed at growth in order to avoid a quick decline into insolvency; not the time to sit back and enjoy the positive outlook all around.