Financial distress easing but more pain to come

Early signs of financial distress in the Scottish business community stabilized in the first quarter of this year, but businesses are urged to prepare for tougher times ahead as consumers cut spending amid the cost of living crisis.

The latest red flag alert data released by Begbies Traynor shows a 1% drop in “significant” or early distress in Scotland between the last quarter of 2021 and the first three months of 2022. Compared to the same period a a year earlier, when the country was still in lockdown, early-stage distress dropped by 22%.

Ken Pattullo, director of Begbies Traynor in Scotland, said business owners should not be misled by these figures.

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“There’s often a lag between the rising cost of living and the impact on business,” he said. “Already people are seeing food and fuel prices go up, and by the next energy hike in the fall, that will have rippled through almost every industry.

“While discretionary spending will be the first to be affected, we are concerned that all types of businesses will feel the impact of consumers tightening their belts as pressure on household incomes takes hold.”

In Scotland, 29,538 businesses have experienced early stage distress cases, meaning businesses that have financial problems such as minor decrees of less than £5,000 lodged against them, during the first trimester.

Those in ‘critical’ distress, which refers to businesses with liquidation petitions or executive orders over £5,000 against them, have fallen 17% from the last quarter of 2021. This compares to an increase by 12% across the UK as a whole.

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Scottish businesses also fared well year-on-year, with advanced distress down 37%, while the UK as a whole saw a 19% increase.

In Scotland, only real estate and property (+3%), construction (+2%) and professional services have seen an increase in early distress since the previous quarter. Printing and packaging showed the greatest improvement (down 11%), followed by sports and health clubs (down 6%) and food and drug retailers (down 5%). %).

“After the turmoil of the pandemic, many have already dipped into cash reserves and with soaring energy prices exacerbated by the situation in Ukraine, as well as continued supply chain disruption as China enforces further lockdowns, we expect the next 12 months to be far from easy,” Mr Pattullo added.

Sarah J. Greer