Ken Pattullo

The independent business rescue and recovery specialist today published its latest Red Flag Alert data, showing a rise in financial distress in Scotland and the UK in the third quarter of 2024 compared with the same period the previous year.

This latest research, which provides a snapshot of British corporate health, reveals that in Q3 2024, there was a 37.2% increase in levels of businesses in Scotland suffering from ‘significant’ financial distress compared with Q3 2023.

This type of distress – which refers to deterioration in key financial ratios and indicators including those measuring working capital, contingent liabilities, retained profits and net worth – impacted 31,338 businesses in the country.

Looking at the picture in Scotland quarter-on-quarter, there was a less severe rise of just under 3% when compared with Q2 2024.

The trends in Scotland are broadly in line with the UK-wide figures, which showed a 32.3% increase in ‘significant’ distress since the third quarter of the previous year, while levels had risen by 5.1% compared with the last quarter.

Across the UK, 632,756 businesses experienced ‘significant’ distress in Q3 2024.

The steady increase in Scottish companies experiencing ‘significant’ financial distress since the previous quarter was driven by noticeable increases in distress in the utilities (+23.9%), sports and health clubs (+12.4%), food and beverages (+10.8%), and bars and restaurants (+10.0%) sectors.

In contrast, in Scotland, just three of the 22 sectors monitored by Red Flag Alert reported a fall in this early-stage distress: print and packaging (-15.7%) manufacturing (-9.1%), and professional services (-1.6%).

Ken Pattullo, managing partner for Begbies Traynor in Scotland, said: “With many businesses still struggling to recover from the ravages of Covid and Brexit, combined with ongoing inflationary pressures affecting every part of the economy, 2024 is proving to be another tough year.

“Despite some initial return of confidence following the change of government, uncertainty is continuing to weigh on the UK economy, and a worrying number of businesses are now reaching the end of the line.

“With over 31,000 companies in Scotland teetering on the edge of financial collapse, more than 37% higher than this time last year, there are widespread concerns around what the impending Budget might bring.”

However, there is some cause for optimism with Scotland seeing the number of businesses in more advanced or ‘critical’ financial distress in Q3 2024 dropping by 26% since the previous quarter; and by 15.7% compared with the previous year, representing just over 1,500 firms.

This type of distress also fell across the UK, dropping by 17.3% quarter-on-quarter to 31,201 companies; and by 23.2% year-on-year.

Mr Pattullo said: “Once the Budget is behind us, it is certainly to be hoped that the UK can look forward to recovery and long-awaited economic growth next year. However, with so much debt having been accumulated by businesses, many remain in an extremely precarious position.

“As ever, we encourage business owners and managers to seek professional advice as early as possible to prevent financial problems from spiralling out of control.”