Business distress soars in Scotland with 33 per cent increase since last year

Businesses in Scotland are continuing to face a tough economic climate with levels of early financial distress rising by almost a third in the first three months of 2018 compared with the same period last year.

According to the latest quarterly Red Flag Alert data released today (25th April 2018) by leading business rescue and recovery specialist Begbies Traynor, in Q1 2018, 25,200 businesses in Scotland saw ‘significant’ financial distress.

This is a year on year rise of 33 per cent (the same as the UK-wide figure) and equates to 6,312 more businesses in the country being affected by this type of distress which includes those with minor decrees against them and those displaying a marked deterioration in key financial ratios. However, quarter on quarter, it appears that ‘significant’ distress in both Scotland and across the UK decreased by 3 per cent.

In terms of the more serious ‘critical’ distress, which refers to businesses that have had winding up petitions or decrees totalling more than £5,000 against them, the latest Red Flag Alert data shows a year on year fall of 51 per cent in Scotland, compared with a drop of just 30 per cent across the UK as a whole. Looking at instances of ‘critical’ distress in Scotland quarter on quarter, there was a drop of 25 per cent, significantly better than the 14 per cent rise across the UK.

Year on year ‘significant’ distress in Scotland affected many sectors with the worst hit being telecommunications (57 per cent rise); professional services (50 per cent); leisure and culture (47 per cent); and financial services (46 per cent). The strongest performing sectors were: hotels and accommodation, up by just 8 per cent; bars and restaurants (15 per cent); food and drink retail (16 per cent); and printing (17 per cent).

Ken Pattullo, who leads Begbies Traynor in Scotland, said: “To see such a dramatic rise in significant distress since last year, both in Scotland and across the whole of the UK, is extremely worrying. Amid continuing concerns about the impact of Brexit and falling confidence among businesses and consumers, the prospects for the British economy in the year ahead look far from promising.

“With economic growth predicted to continue to lag behind that of the other G7 nations in 2018, there seems little hope of a change in fortunes and directors would be well advised to keep a close eye on cash flow and seek professional help at the first signs of trouble when the widest choice of options will be open to them.”