Scottish businesses see massive rise in advanced financial distress as hard times begin to bite
Register for free to read more of the latest local news. It's easy and will only take a moment.
Businesses across Scotland are being warned to prepare for further tough times ahead as new research from Begbies Traynor shows that in the last quarter advanced financial distress among businesses in the country had already started to soar compared with other parts of the UK.
The latest Red Flag Alert data, published this week, revealed that for the three months to September 2022 there was a 112 percent increase in the number of businesses in critical distress (which refers to companies that have financial problems such as decrees of more than £5000 filed against them) in Scotland compared to the same quarter in 2021.
The figures also revealed a 37 percent rise since quarter two of 2022.
Across the UK as a whole, this type of advanced distress saw an annual increase of 25 percent and a quarterly increase of just seven percent.
Begbies Traynor’s figures also showed a rise in the number of firms displaying early or significant distress which includes having had decrees of less than £5000 filed against them.
In Scotland, critical distress increased by three percent on the previous quarter – and five percent year-on-year.
The new data shows that in the third quarter of 2022 over 30,100 firms in Scotland displayed symptoms of this type of early stage distress.
The UK-wide figures showed a four percent uplift since quarter two 2022 and an eight percent rise compared with the same period the previous year with more than 600,000 firms suffering ‘significant’ distress in the last quarter.
In Scotland, the sectors which saw the sharpest increase in significant distress year on year were real estate and property services (up 17 percent); wholesale (16 percent); industrial transportation and logistics (10 percent); and food and beverages, travel and tourism, and media (all rose by eight percent).
Only five sectors – bars and restaurants, health and education, hotels and accommodation, printing and packaging and sport and health clubs experienced a decline in significant distress compared with the same period the previous year.
Managing partner for Begbies Traynor in Scotland Ken Pattullo said: “With businesses continuing to face challenges including supply chain issues, soaring gas and electricity prices as well as shortages of raw materials and labour, economic prospects are bleak and there’s no real end in sight.
“Already, we are seeing the pressures of higher costs and falling consumer optimism weighing on businesses still reeling from the impact of the pandemic.
"In addition to coping with the fallout from the current cost of living crisis, many businesses are now facing the challenge of repaying debt such as the Government’s bounce back loans.
"It is particularly concerning to see such stark increases in levels of advanced distress here in Scotland, with the latest quarter showing levels four and a half times higher here than the rise seen across the UK as a whole.
“With worry about spiraling energy costs, inflation and mortgage rates threatening to curtail household spending, confidence is falling among businesses too. We urge the country’s beleaguered small businesses to seek professional help as soon as possible to avoid their financial problems from escalating.”
