Home Finance & Investments Numbers of North East businesses facing serious financial distress increases by more...

Numbers of North East businesses facing serious financial distress increases by more than a quarter

Andrew Little and Gillian Sayburn of Begbies Traynor in Newcastle

The number of firms in the North East facing advanced financial problems that could put them at risk of insolvency rose by more than a quarter in the last three months of 2023, according to the latest Red Flag Alert data from leading independent business rescue and recovery specialist Begbies Traynor.

In the final quarter of the year, very severe, or ‘critical’, distress had risen by 27.1% in in the North East since the previous quarter, to affect 836 businesses in the region. Year-on-year, the number of severely distressed firms in the North East had grown by 12.5%.

The figures also demonstrate the speed with which severe distress is increasing in the North East. The region had suffered an even more pronounced increase than that affecting the UK as a whole, which recorded a 25.9% hike in critical distress since Q3 2023 and a 2.6% rise year-on-year.

According to Begbies Traynor’s report, less severe or ‘significant’ 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) has also increased to affect over 9,500 businesses in the North East. It had had risen by 12.9% in the region since the end of Q3 2023 (the same as across the UK as a whole) and 2.6% since Q4 2022 (5.6% across the UK).

Andrew Little, partner for Begbies Traynor in the North East, said: “It is extremely worrying to see the number of businesses facing very advanced distress rise by more than a quarter in just three months here in the North East and across the UK as a whole. This is perhaps another sign that, having taken on debt when interest rates were low, and having benefitted from Government support through the pandemic, businesses are now being forced to deal with the current reality of high interest rates.”

Partner Gillian Sayburn adds: “With high inflation triggering rising wages and material costs as well as weak consumer confidence, it looks likely that many of these businesses may be heading towards insolvency – we urge them to seek professional advice as soon as possible before financial problems spiral out of control.”

Some sectors in the North East were particularly badly hit with food and drink seeing a quarter-on-quarter rise in critical distress of 233%; financial services (+110%); wholesale (+100%); and leisure and cultural activities (+71%).

Only three sectors in the region saw critical distress fall since the previous quarter – utilities fell by 50%; media dropped by 13%; and food and drug retailers decreased by 4%.