Begbies Traynor: Financial distress in Scotland rises as economic downturn continues to bite

The latest Red Flag Alert research shows that in the period from January to April 2024, there was a 22.6% increase in more advanced or ‘critical’ distress among Scottish businesses compared with the same period the previous year. This type of severe distress affected over 2,060 businesses in Scotland.

The level was even greater than the UK-wide figure which saw a 20.1% rise in critical distress since Q1 2023, representing over 40,170 businesses.

In the first quarter of 2024, while Scotland saw an 8% fall in critical distress since the previous quarter, this was lower than the drop of 15.4% across the UK as a whole.

Of the 22 sectors analysed, in Scotland, 13 saw rises in critical distress in the first quarter of the year compared with the first three months of 2023. The most badly affected were print and packaging with a 166.7% rise; followed by food and drugs retailers, up by 102.7%; travel and tourism, up by 83.3%; and food and beverages, up by 77.8%.

Property and real estate, and construction also saw marked year-on-year increases, with rises of 60.2% and 30% respectively; while professional services rose by 23.3%.

The Scottish sectors which performed most strongly in Q1 2024 compared with Q1 2023 with falls in advanced distress were utilities down by 83.3%; industrial transport and logistics (down by 31.8%); and wholesale (down by 25%).

Looking at ‘significant’ or early-stage financial distress, 35.9% more businesses in Scotland experienced an increase compared with Q1 2023. This type of distress (which refers to businesses showing deterioration in key financial ratios and indicators including those measuring working capital, contingent liabilities, retained profits and net worth) also saw a rise in Scotland of 7.1% since the previous quarter. Almost 28,000 Scottish businesses were impacted by significant distress in the first three months of 2024.

These figures are above the national average with a 2.7% increase in UK-wide levels of significant distress quarter-on-quarter; and a 30.8% uplift in incidences of businesses across the UK seeing a year-on-year increase in early distress, representing more than 554,550 businesses.

Ken Pattullo, managing partner for Begbies Traynor in Scotland, said: “It is no surprise that businesses in Scotland and across the UK are continuing to struggle in the face of such a tough economic climate. Unfortunately, inflation is slowing less than expected and with ongoing global unrest, the picture is far from certain.

“In Scotland, it’s evident that both business-to-business and consumer-facing sectors are suffering as many people continue to struggle from the pressure of rising prices and are yet to feel that the UK economy is on the road to recovery.

“We urge businesses to keep a close eye on their financial situation and seek professional advice as soon as any problems become evident in order to prevent them from escalating further.”