More than 39,000 businesses in the South West are in serious financial trouble and the situation is expected to get worse, according to a new report.
The latest Red Flag Alert report, for the third quarter of 2021, shows businesses in the region are at risk from supply restrictions, inflation, including rising energy prices, staff shortages and the end of government Covid safety nets.
The report, from corporate recovery and insolvency expert Begbies Traynor, shows that nationwide 562,000 businesses are in trouble with a huge increase in legal actions fueling insolvency concerns.
That’s 15% more than two years earlier, before the pandemic hit, but down 14% from the previous three months in 2021.
In the Southwest, 39,870 companies are in “significant” financial difficulty. Of these, 1,248 are in Plymouth, although this figure fell by 7% in the third quarter of 2020 and by 15% in the second quarter of 2021, as the majority of Covid restrictions have been eased and the economy reopened .
The hottest sectors nationwide include support services, construction, and real estate and property.
In Plymouth, real estate and property top the list from July to September, followed by bars and restaurants. Both posted year-over-year increases of 7%, but this also represents a decline of 12% and 3% between the second and third quarters of 2021.
That said, Begbies Traynor warns there are ‘tremendous challenges’ ahead for businesses, including limited availability of raw materials, rising inflation, labor shortages, soaring prices energy and the withdrawal of government Covid support measures, which could still impact failure rates through the remainder of 2021 and beyond.
Nationally, the latest Red Flag Alert study showed that, despite improved financial performance of companies in the third quarter, the number of companies in serious difficulty is 15% higher than before the pandemic.
There are also concerns about a sharp rise in CCJs (county court judgments), which are often an indicator of future insolvency, Begbies Traynor said, with official data showing there were 9,101 CCJs. filed against businesses in Q3 2020, rising to 21,769 in Q3 2021, an increase of 139%.
Scott Kippax, partner at Begbies Traynor in Plymouth, said: “The quarterly drop in significant financial difficulties is welcome news and provides some respite for hard-hit businesses in Plymouth.
“However, concerns remain about deteriorating trading conditions for many businesses, with rising CCJ figures an early indicator that some suppliers are running out of patience with customers who are extending payment terms.
“Despite the summer economic boom, systematic problems remain and many businesses face a long-term struggle to repay government-backed Covid loans.
“However, inflation, energy costs and labor availability may prove to be the snake in the grass for many of these businesses, particularly if they are unable to pass these costs on to their customers.
“These risks, combined with the withdrawal of government support and protection measures, could lead to a difficult remainder of 2021 which could also continue into 2022.”
Business Live’s South West business reporter is William Telford. William has over a decade of experience reporting on the business scene in Plymouth and the South West. It is based in Plymouth but covers the whole region.
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Begbies Traynor said “significant” distress is in companies with CCJs of less than £5,000, filed against them or which have been identified by Red Flag Alert’s proprietary credit risk scoring system, which filters out companies for a sustained or marked deterioration in key financial ratios and indicators. including those measuring working capital, contingent liabilities, retained earnings and net worth. Those in ‘critical’ distress are businesses with CCJs over £5,000 lodged against them.
In England and Wales, CCJs are judicial decisions made by the County Court. Judgments for sums of money are recorded in the Statutory Register of Judgments, Orders and Fines, which is monitored by credit reporting agencies to assess the creditworthiness of individuals and businesses.