Fewer Scottish companies reporting signs of growth – R3

The percentage of Scottish companies which report that they are benefiting from at least one sign of growth may have taken a tumble in recent months, according to new research by insolvency and restructuring trade body R3.

The indicative research, part of a long-running survey of business distress by R3 and BDRC, estimates that the proportion of companies in Scotland reporting one or more signs of growth fell to 54 per cent in September 2017, down from 75 per cent in April and 59 per cent in September 2016.

Of the five signs of growth among Scottish businesses monitored by R3, four of them experienced a drop compared with April of this year.

At the same time, however, there may be some good news as the proportion of companies reporting one or more signs of distress fell to 16 per cent, compared with 30 per cent in both April of this year and September 2016.

Only around 8 per cent of Scottish firms surveyed said that they had seen a reduction in sales volumes, while around 7 per cent said that they were owed payment on invoices over 30 days past due.

As an illustration of the uncertainty in the business environment, 38 per cent of Scottish companies indicated they are more optimistic about the economy in general than they were three months ago, while 44 per cent said they are more pessimistic. Yet when asked about the prospects for their own firms, Scottish business owners appeared to be more upbeat, with around 48 per cent saying they expect their business activity to increase, and only around 3 per cent saying they expect it to decrease.

Tim Cooper, Chair of R3 in Scotland and a partner at Addleshaw Goddard, said: “Although the drop in the number of companies reporting at least one sign of distress is encouraging, the fall in the percentage of firms which say they are enjoying at least one sign of growth paints a mixed picture for the Scottish economy.

“It appears that a lot of firms may be treading water – they are able to tick along in the near term, perhaps thanks to factors such as continued access to business finance, a lack of upward pressure on wages, or demand for exports due to the diminished value of the pound.

“There is a lot of uncertainty out there, and lots of businesses will be holding back on making decisions about growth and investment. If growth really tails off, it won’t be too long before distress levels start to increase.

“For a lot of companies already on the edge, just one shock – such as a rise in the cost of borrowing, the failure of a major supplier or customer, or a fall in consumer confidence – could be enough to push them into insolvency.

“Many companies have seen their fixed costs rise over the past year, whether due to higher business rates, an increase in the National Minimum Wage, inflation’s upward trajectory, higher fuel prices, or a rise in the cost of imported materials. Meanwhile the Scottish economy’s growth has not been rapid enough to offset these greater outlays, leaving some firms in a precarious position.”

The number of companies saying they are investing in new equipment appeared to drop sharply between April and September, from 69 per cent to 15 per cent.

Mr Cooper added: “The question of balancing competing needs – whether to prioritise solidifying their cash position or investing in their businesses, a key concern in the digital age – is more urgent than ever for many companies, especially with the economic landscape becoming more unsettled.

“There are always options for firms which are experiencing distress, and the regulated advisors within the insolvency and restructuring profession can often help directors to make the best choices for their companies. The sooner the directors of a company reach out for expert advice from a regulated professional, the more can be done to provide the best possible outcome for a distressed firm.”