Ken Pattullo

The latest Red Flag Alert data revealed that for the three months to September 2022, there was a 112% increase in the number of businesses in “critical” distress (which refers to companies that have financial problems such as decrees of more than £5,000 filed against them) in Scotland compared to the same quarter the previous year. The figures also revealed a 37% rise since Q2 2022.

Across the UK as a whole, this type of advanced distress saw an annual increase of 25% and a quarterly increase of just 7%.

The figures also showed a rise in the number of firms displaying early or “significant” distress which includes having had decrees of less than £5,000 filed against them. In Scotland, “critical” distress increased by 3% on the previous quarter – and 5% year-on-year.

The new data shows that in the third quarter of 2022 over 30,100 firms in Scotland displayed symptoms of this type of early stage distress. The UK-wide figures showed a 4% uplift since Q2 2022 and an 8% rise compared with the same period the previous year with more than 600,000 firms suffering “significant” distress in the last quarter.

In Scotland, the sectors which saw the sharpest increase in “significant” distress year on year were real estate and property services (up 17%); wholesale (16%); industrial transportation and logistics (10%); and food and beverages, travel and tourism, and media (all rose by 8%).

Only five sectors – bars and restaurants; health and education; hotels and accommodation; printing and packaging; and sport and health clubs experienced a decline in “significant” distress compared with the same period the previous year.

Ken Pattullo, managing partner for Begbies Traynor in Scotland, said: “With businesses continuing to face challenges including supply chain issues, soaring gas and electricity prices as well as shortages of raw materials and labour, economic prospects are bleak and there’s no real end in sight.

“Already, we are seeing the pressures of higher costs and falling consumer optimism weighing on businesses still reeling from the impact of the pandemic. In addition to coping with the fallout from the current cost of living crisis, many businesses are now facing the challenge of repaying debt such as the Government’s bounce back loans.

“It is particularly concerning to see such stark increases in levels of advanced distress here in Scotland, with the latest quarter showing levels four and a half times higher here than the rise seen across the UK as a whole.”

Mr Pattullo concluded: “With worry about spiraling energy costs, inflation and mortgage rates threatening to curtail household spending, confidence is falling among businesses too. We urge the country’s beleaguered small businesses to seek professional help as soon as possible to avoid their financial problems from escalating.”