Ken Pattullo

Providing a quarterly snapshot of the UK’s corporate health, the business rescue and recovery specialist firm’s Red Flag Alert data for Q2 2025 revealed that instances of early or ‘significant’ business distress in Scotland had grown by 9.1% since the first three months of the year and by 2.7% since Q2 2024. With 31,251 Scottish firms now affected, signs of early-stage financial problems also rose across the UK as a whole, increasing by 15.1% quarter-on-quarter and by 10.8% year-on-year with a national total of 666,876 businesses feeling its impact.

Almost all sectors in Scotland saw increases in significant distress in the second quarter of 2025 compared with the previous three months, with nine of the 22 industry categories monitored by Red Flag Alert experiencing double digit growth. Among the worst affected were: printing and packaging (+21.7%); bars and restaurants (+15.3%); professional services, and food and drugs retailers (both +15.2%).

In contrast, the only sectors in Scotland to see a quarter-on-quarter fall in significant distress were: manufacturing (-12.1%); automotive (-6.7%); food and beverages (-3.1%); and sports and health clubs (-1.6%).

Ken Pattullo, managing partner for Begbies Traynor in Scotland, said: “Businesses here in Scotland, and indeed across the UK, are continuing to operate in extremely difficult conditions as we face a number of global conflicts together with the challenges of Trump’s ever-changing international trade war.

“The most important factor for business success is certainty and, unfortunately, over the last five years or so, there has been very little of that, making long-term planning tough and further damaging confidence.”

In addition to the growth in early business distress, instances of advanced or ‘critical’ financial distress, both in Scotland and across the UK, also revealed a bleak picture. A total of 2,347 Scottish businesses experienced this type of distress, representing an increase of 7.2% since the previous quarter and a rise of 15.6% compared with the second quarter of 2024. This was reflected nationally with a quarter-on-quarter increase of 8.6% and a year-on-year rise of 21.4%, with 49,309 businesses affected across the UK.

Looking at critical distress in Scotland, all but six of the sectors saw increases compared with the same period the previous quarter – professional services was most severely hit with a rise of 58.8%, followed by bars and restaurants which rose by 50.4%. The strongest performing sectors were: printing and packaging (-62.5%); manufacturing (-38.2%); leisure and culture (-37.8%); health and education (-24.6%); and general retail (-11%).

Mr Pattullo continued: “With employers struggling under the dual burden of increased national insurance contributions and a rise in the national living wage both introduced earlier this year, as well as inflation remaining above target levels, increasing numbers of businesses are struggling for survival rather than seeing much longed-for growth.

“Business owners would be well advised to keep a very close eye on their finances and seek professional support at the first sign of problems when advisers will have more tools available to help them to prevent problems from escalating.”