Ken Pattullo

The independent business rescue and recovery specialist said its Red Flag Alert data for the last quarter of 2024 shows that critical instances of financial distress rose by a massive 56.5% from the previous quarter.

The figure for almost every sector in Scotland was above the UK average rise of 50.2%, it added.

There was a 25.4% increase in businesses suffering from “significant” financial distress compared with the previous quarter, some 4% higher than the UK average year-on-year rise of 21.3%.

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 – was recorded in 32,696 instances in Scotland.

Across the wider UK there were more than 654,000 instances of business financial distress, and a marginally slower quarter-on-quarter rise of 3.5%.

Almost every sector in Scotland saw rises in critical distress compared with the previous three-month period, with utilities (+275%) and food manufacturing (+210%) seeing the highest rises.

The most affected sectors within Scottish firms experiencing “significant” financial distress since the previous quarter were professional services (+16.1%), printing & packaging (+15.3%), health and education (+13.1%), hotels & accommodation (+13%), sports and health clubs (+12.6%).

Seven of 22 industry categories monitored by Red Flag Alert saw decreases in “significant” distress levels in Scotland, with bars and restaurants (-8.9%), food and drug retailers (-7.4%) and industrial transport and logistics (-5%) accounting for the most recovered sectors during the traditionally busy Christmas period.

Ken Pattullo, managing partner for Begbies Traynor in Scotland, said: “The huge jump in critical distress compared to last quarter hides a slight fall in that measure year on year, and can in part be attributed to seasonal peaks and troughs.

“However, the data for significant distress levels tends to predict future critical distress some months later, and is something of an early warning of widespread impact to come.

“Yet another quarter of increased distress is compounded by the imminent impact of the Autumn budget and increased associated costs for business.

“There is evidence that cost inflation, although lower than a year ago, is still trickling through the supply chain, and layer on top of that the additional costs of employing staff from April 2025 and things look fairly grim for the second half of the year.”

He added: “It’s clear that with so many businesses carrying so much debt the unwelcome additional cost burden that resulted for many employers in the recent budget could well be the straw that broke the camel’s back for many Scottish firms.”