THE number of firms in Scotland experiencing financial distress rose sharply in the final quarter of 2023, new figures have shown.
Underlining the continuing impact of high inflation and interest rates, the latest Red Flag Alert from Begbies Traynor found the number of Scottish businesses in early-stage or more advanced financial distress increased by 25.9% in the final three months of the year, compared with the previous quarter. The restructuring specialist also found a 9.1% rise in Scottish firms reporting this level of distress compared with the same period of 2022, with this type of distress now affecting more than 2,240 businesses north of the Border.
Some sectors were found to be suffering more than others, though distress levels were spread widely across a range of sectors.
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The analysis revealed particularly worrying signs in the printing and packaging sector, which saw a 150% rise in critical distress quarter-on-quarter. The number of hotels in critical distress rose by 111%, followed by firms in professional services (+49%), food and drink (+40%), leisure and cultural activities (+35%) and construction (+31%).
Only two sectors in Scotland saw critical distress fall compared with the previous quarter: travel and tourism (-23%) and utilities (-21%).
Firms in Scotland reported an uplift of 14.2% quarter-on-quarter, and a rise of 5.9% year-on-year, on the less advanced ‘significant’ distress score. This refers to businesses showing deterioration in key financial ratios and indicators, including those measuring working capital, contingent liabilities, retained profits and net worth. More than 26,000 Scottish businesses suffered from significant distress in the fourth quarter of 2023, the Red Flag Alert found.
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Begbies Traynor said the trends in Scotland were reflected across the UK, which saw a 25.9% uplift in reports of critical distress in the final three months of 2023 compared with the previous quarter. Nearly 47,500 UK firms are now affected. Instances of significant distress also increased on a UK-wide basis by 12.9% quarter-on-quarter, and by 5.6% year-on-year, representing a total of 539,900 businesses.
“It is concerning to see early and advanced distress in Scotland and, indeed, across the whole of the UK, continuing to climb,” said Ken Pattullo, managing partner for Begbies Traynor in Scotland. With no respite from high interest rates and rising costs, both businesses and consumers are struggling.
“Given the UK’s performance in recent years and with further stagflation predicted, a technical recession remains a distinct possibility in the second half of 2024. This, together with a climate of global geopolitical uncertainty, makes it more important than ever that businesses proceed with caution and seek advice from insolvency professionals at the first signs of trouble.”
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