Steep climb in business distress across all sectors in Scotland

Business distress is hitting businesses in Scotland increasingly hard, according to research published today by Begbies Traynor.

The number of Scottish firms suffering from financial problems showed double digit increases across almost every industry sector in the last three months of 2017 compared with the same period the previous year.

The quarterly Red Flag Alert data, produced by leading business rescue and recovery specialist Begbies Traynor, reveals that in Q4 2017 ‘significant’ distress levels among Scottish businesses climbed by 37 per cent compared with the same three months in 2016, affecting 26,111 businesses (compared with 19,039 the previous year).

Scotland also saw a quarterly increase in distress of 9 per cent on Q3 2017, while more serious ‘critical’ distress also rose by 12 per cent year on year and by 35 per cent compared to Q3 2017, a higher increase than in any other UK region.

Across the UK as a whole distress levels also rose rapidly, with a year-on-year hike of 36 per cent in Q4 2017. Financial distress now affects almost half a million British businesses.

“Significant’ distress relates to businesses that are showing what are considered to be the early warning signs of financial difficulties, including those with minor decrees against them and those displaying a marked deterioration in key financial ratios. The symptoms are often viewed as a forerunner to more serious or ‘critical’ distress, which refers to businesses that have had winding up petitions or decrees totalling more than £5,000 against them.

Scotland’s construction industry continued to be among the sectors hardest hit by economic distress in the region with 3,673 businesses suffering from financial difficulties in Q4 2017, a 34 per cent rise on the number affected in the same quarter of 2016. UK-wide, the picture for construction looked equally bleak with a 31 per cent year-on-year jump in distressed building firms, and a total of 62,294 ailing businesses in the sector.

Ken Pattullo, who leads Begbies Traynor in Scotland, said: “The apparently relentless onward march of distress right across the Scottish economy is tremendously worrying. It’s worth noting that these latest figures do not reflect the inevitable negative impact of the Carillion debacle, which looks set to affect many Scottish subcontractors involved in projects such as the Aberdeen Western Peripheral Road and the electrification of the central Scotland railway line.”

The region’s retail sector has also been particularly hard hit, with both general, and food and drug, retailers increasingly succumbing to financial problems. A total of 2,394 Scottish retail businesses are now affected, up by 25 per cent on Q4 2016.

Sectors which saw the most dramatic year-on-year rises in Scotland include leisure and cultural activities (60 per cent), financial services (58 per cent) and telecommunications (58 per cent).

Mr Pattullo added: “Continuing uncertainty over Brexit, as well as rising interest rates, are taking their toll, and with SMEs particularly vulnerable to economic fluctuations, business owners and directors need to proceed with the utmost caution and keep a very close eye on their cash flow. It is always the best course of action to seek professional advice at the first signs of trouble, so that more serious problems can be avoided.”