Early-stage financial distress in Scotland continues to rise

July 22, 2024

2 minutes read

Scottish businesses are continuing to struggle, with growing numbers seeing rising ‘significant’ or early-stage financial distress in the second quarter.

The latest Red Flag Alert data from Begbies Traynor showed that there were 30,435 businesses across Scotland in ‘significant’ financial distress during the second quarter – which refers to businesses showing deterioration in key financial ratios and indicators including those measuring working capital, contingent liabilities, retained profits and net worth.

This represents a 46.1% increase compared with the same quarter in 2023 and a rise of almost 9% since the first quarter this year.

The year-on-year figures were markedly higher than the national picture, which showed a 36.9% increase, while the quarter-on-quarter level was close to the UK-wide figure of an 8.6% rise.

Looking at more advanced or ‘critical’ distress from April to June, in Scotland there was a 40.5% increase compared with the period from January to April, with another 2,031 businesses suffering from this type of distress.

However, the country saw a fall in critical distress of 1.7% since the previous quarter, while in the UK as a whole, it rose by 1.1% quarter-on-quarter and by 34.5% year-on-year, with more than 40,600 businesses affected.

Ken Pattullo, managing partner for Begbies Traynor in Scotland, said: “Despite some encouraging signs of a return to growth in the UK economy, such as the slight rise in GDP in May, there’s no doubt that over the last few years businesses have battled a deluge of challenges and, unfortunately, their cumulative effect is continuing to be felt, particularly by SMEs, with early-stage financial distress once again on the rise.”

In terms of early-stage distress across the sectors, in Scotland none of the 22 sectors analysed saw a fall and only one experienced less than double-digit growth in the second quarter, compared with the same period the previous year – significant distress in utilities increased by just 2.7%.