As detailed in the latest Red Flag Alert data from business rescue and recovery specialist Begbies Traynor, in the third quarter of 2023, there was a 23.3% rise in levels of Scottish businesses seeing advanced or ‘critical’ distress since the previous quarter, and a 12.1% uplift compared with the same period the previous year.

This type of severe distress saw over 1,780 businesses in Scotland facing major financial problems.

Looking at early or ‘significant’ distress, in Scotland, there was a quarter-on-quarter increase of just under 10% to more than 22,830 businesses in quarter three. This type of distress (which refers to businesses showing deterioration in key financial ratios and indicators including those measuring working capital, contingent liabilities, retained profits and net worth) also rose by 5.8% since the same period the previous year.

Across the UK, critical business distress increased by 25% on the previous quarter and by almost 2% year-on- year, to affect 37,722 firms nationally. Almost half a million companies (478,176) nationwide saw incidences of significant distress rise with an uplift of 8.7% quarter-on-quarter, and by 4.7% compared with Q3 2022.

Ken Pattullo, managing partner for Begbies Traynor in Scotland, said: “With high inflation rates continuing, businesses in Scotland like much of the UK, are battling to keep their heads above water in the face of escalating running costs, high borrowing rates and falling customer demand.

“With many firms still reeling from the impact of the pandemic, swiftly followed by the cost of living crisis, it is not surprising that levels of both early and advanced distress have spiralled since the last quarter.

“In such a difficult economic climate, we urge any business owners who are beginning to experience financial difficulties to seek professional advice as quickly as possible, as swift action can prevent problems from escalating.”

According to the latest Red Flag Alert, construction, support services, real estate and property services, professional services companies and general retailers saw the highest numbers of Scottish businesses in critical distress in Q3 2023.

In Scotland, 313 construction firms suffered from advanced financial problems, an increase of 29.3% since Q2 2023. Support services accounted for 282 critically distressed business in Scotland (52.4% up on Q2 2023), while real estate and property services accounted for 205 severely distressed firms, up 24.2% on the previous three months.

Just four sectors in Scotland saw critical distress fall by double-digit figures since the previous quarter. These were: hotels and accommodation (down by 37.9%); printing and packaging (-33.3%); telecoms and IT (-29.1%); and bars and restaurants (-13.9%).