As the cost of living crisis continues to bite, levels of businesses in Scotland which are already experiencing ‘critical’ or advanced distress have seen a massive increase in the final quarter of 2022 compared with the same period the previous year.
The latest Red Flag Alert data from business recovery firm Begbies Traynor, for the final three months of 2022, showed a 161% year-on-year increase in the number of businesses in Scotland experiencing ‘critical’ distress - companies that have financial problems such as decrees of more than £5,000 filed against them.
Scotland also saw higher levels of critical distress in the fourth quarter, compared with the previous quarter, with a rise of 35%.
In terms of early or ‘significant’ distress - which includes companies having had decrees of less than £5,000 filed against them - Begbies Traynor’s research showed a slightly more optimistic picture with the combination of buoyant pre-Christmas shopping, the World Cup and government support for energy costs helping to boost retail sales and the wider economy.
In Scotland, early stage distress remained stable compared with the same period the previous year, affecting more than 29,800 businesses, while it fell by 1% compared with the previous quarter.
Most sectors flatlined or saw a decrease in ‘significant’ distress year-on-year, except for property services, which again experienced a rise - this time of 16% - followed by food and beverages (up 7%), telecommunications (up 5%) and manufacturing (up 1%).
The only sectors to see double-digit decreases in distress compared with the same period the previous year were bars and restaurants (down by 16%) and health and education (down by 14%).
Ken Pattullo, managing partner for Begbies Traynor in Scotland, said: “Despite some high street retailers reporting slightly better Christmas sales than expected, as households face the biggest squeeze on living standards in decades and businesses brace themselves for the withdrawal of the energy cap, there are real fears that worse is yet to come.
“While there is some comfort in the fairly steady levels of early distress both here and across the UK, many are concerned that this is the quiet before the storm.”
Pattullo continued: “In such a volatile economic landscape, directors would be well advised to batten down the hatches and prepare for another tough year – as ever, it’s vital that businesses seek professional help at the first signs of financial distress when the most options will be available to them to gain control of the situation.”
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