IN SPRING, 2010, meteorologists were predicting the hottest summer on record and Britain’s advertising sector was in full bloom.

But, as the country now struggles with the aftermath of the earliest snowfall in 17 years, the creative sector is likewise experiencing a sharp reversal of fortunes.

Our Red Flag Alert monitors the early warning signs of company Šdistress, and, although the Q3 figures showed a slight improvement on the previous quarter, the advertising sector stood out like a sore thumb.

The number of advertising companies in distress had fallen by 29% between Q1 and Q2 in 2010 but, by early October, this had reversed to a sharp 27% increase. Indeed, recent weeks have seen reports of PR redundancies and agency closures across Merseyside.

So what went wrong? Aside from a reduction in public sector spending, HMRC has been issuing a growing number of winding-up petitions in an effort to increase revenues.

Some agencies have managed by making informal arrangements with creditors – deals they are now strongly urged to formalise. A nudge and a wink aren’t legally binding and creditors are unlikely to remain sympathetic beyond Christmas as the January blues set in.

Those helping to boost the brands of retailers during the festive season – and, of course, ahead of the VAT rise – might boast positive cash flow. But beware: as the disposable income of consumers tightens, we expect to see a significant rise in retail and leisure corporate failures from the first quarter of 2011. If your client base is focused in these areas, now might be the time to branch out and look further afield for work.

Whether the Government manages to strike the right balance between reducing the UK’s deficit while introducing cuts and withdrawing temporary support measures remains to be seen. But, as we prepare for what we expect to be a prolonged period of growth in business distress, implementing sound accounting practices and proactive cash flow management is absolutely essential for Liverpool’s creative industries. Don’t rely on one major contract, especially not if it is in any way linked to the public sector. Act at the first sign of trouble and chase debts as soon as they become overdue. Otherwise, you could easily find yourself in the creditors’ queue looking for handouts.