Home Finance & Investments Levels of severe financial distress rise by 25% as North East businesses...

Levels of severe financial distress rise by 25% as North East businesses face worsening economic climate

Andrew Little and Gillian Sayburn of Begbies Traynor in Newcastle

With the continuing challenge of high interest rates and inflation, the third quarter of 2023 saw a hike of over 25% in levels of businesses in the North East experiencing advanced financial difficulties since the previous quarter according to the latest Red Flag Alert data from leading independent business rescue and recovery specialist Begbies Traynor.

Figures for the latest quarter show that 658 businesses in the region saw advanced or ‘critical’ distress, however, this represented a fall of 1.4% compared with the same period the previous year.

Looking at early or ‘significant’ distress, in the North East, there was a quarter-on-quarter increase of just under 6.2% to more than 8,480 businesses in the third quarter. 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 rose by 5.1% since the same period the previous year.

Across the UK, critical business distress increased by 25% on the previous quarter and by almost 2% year-on- year, to affect 37,722 firms nationally. Almost half a million companies (478,176) nationwide saw incidences of significant distress rise with an uplift of 8.7% quarter-on-quarter, and by 4.7% compared with Q3 2022.

Andrew Little, partner for Begbies Traynor in the North East, said: “There’s no doubt that businesses both in the North East and across the UK are facing unprecedented pressure with high inflation rates continuing to bite, along with spiralling operating costs and a drop in customer demand. For many, the cost of debt is proving to be the final straw, pushing them to the very edge of failure.”

According to the latest Red Flag Alert, construction, real estate and property services, support services and general retailers saw the highest numbers of North East businesses in critical distress.

In the North East, 119 construction firms experienced advanced financial problems in Q3 2023, an increase of 58.7% since the previous quarter. Real estate and property services firms accounted for 94 critically distressed businesses in the region (up 113.6% on Q2 2023), while support services added a further 91 (up 24.7%) and general retailers another 51 businesses (up 41.7%).

The sectors in the North East which saw the greatest falls in critical distress since the previous quarter were: food and beverage (down by 50%); bars and restaurants (-37.2%); printing and packaging and utilities (both down by 33.3%); and telecoms and IT (-30.3%).

Partner Gillian Sayburn adds: “Many companies are particularly vulnerable at the current time as they continue to fight to recover from the twin challenges of the pandemic and the cost of living crisis. Consequently, we are seeing levels of both early and advanced distress escalating since the last quarter. We once again encourage directors of businesses which are starting to suffer from financial problems to turn to insolvency professionals like us for advice as soon as they can, before problems spiral out of control.”

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