Levels of Scottish businesses in advanced financial distress continues to escalate

Ken Pattullo

The company’s quarterly Red Flag Alert data which reveals the UK’s financial health, shows that in Q4 2018, the number of Scottish businesses in ‘critical’ distress (which refers to businesses that have had winding up petitions or decrees totalling more than £5,000 against them) increased by 71 per cent compared with the same quarter the previous year. In contrast, there was a UK-wide increase in ‘critical’ distress of 25 per cent.

However, from October to December 2018, levels of ‘critical’ distress in Scotland grew by 7 per cent, since Q3 2018, compared with a fall of 1 per cent across the UK as a whole.

Of the 21 sectors surveyed, only two in Scotland saw a fall in ‘critical’ distress year on year: financial services decreased by 67 per cent and leisure and cultural activities by 50 per cent. The most dramatic increases were in: general retailers (350 per cent rise); professional services (200 per cent rise); hotels & accommodation (150 per cent rise); and support services (111 per cent rise).  

In contrast, levels of ‘significant’ distress which indicate the early signs of financial difficulties (ie businesses with minor decrees against them and those showing a marked deterioration in key financial ratios) dropped by 2 per cent in Scotland in Q4 2018 compared with the final quarter of the previous year, reflecting the UK-wide picture which also saw a 2 per cent fall. In the last three months of 2018, 25,465 Scottish firms showed signs of ‘significant’ distress, a rise of just 3% on the previous quarter, which again is in line with the 3 per cent increase across the whole of the UK.

Ken Pattullo, who leads Begbies Traynor in Scotland, said: “During 2018, we saw dramatically rising advanced distress among businesses here, and it has been another damaging quarter for Scotland with a further surge in instances of this ‘critical’ distress, even compared with the previous year. These financial woes are hitting firms across the board, affecting both consumer-facing and business to business sectors as both individuals and firms suffer from the ongoing uncertainty and falling confidence.

“While the picture of advanced distress year on year in Scotland is markedly worse than across the UK as a whole, it is reassuring to see that the country is reflecting the UK-wide picture in terms of early or ‘significant’ distress with a slight drop in these instances compared with the final quarter of 2017. What businesses need most in order to flourish is certainty and, unfortunately, this is currently in short supply both at home and abroad.”