Ken Pattullo

The latest Red Flag Alert data shows a 1% fall in ‘significant’ or early-stage distress in Scotland in Q1 2022 compared with the final quarter of 2021, mirroring the picture across the rest of the UK.

There was a marked fall in this type of distress (which refers to companies that have financial problems such as minor decrees of less than £5,000 filed against them) compared with the same period the previous year when the country was still in lockdown – ‘significant’ distress in Scotland fell by 22%, slightly above the UK-wide figure of a 20% decrease.

In Scotland, 29,538 businesses experienced instances of ‘significant’ distress in the first quarter of the year, while 581,596 businesses across the UK were seeing early-stage distress.

Ken Pattullo of Begbies Traynor said: “While the levelling off of distress appears to be an encouraging sign, it is vital that business owners are not complacent and prepare themselves for some challenging times ahead. After the turmoil of the pandemic, many have already eaten into cash reserves and with soaring energy prices being 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.”

Looking at the more advanced ‘critical’ distress (which refers to businesses that have had winding-up petitions or decrees totalling more than £5,000 against them), in the first three months of the year, compared with the final quarter of 2021, businesses in Scotland saw a 17% drop. This compares with a 12% rise across the UK as a whole quarter on quarter. Scottish businesses also fared well year on year, with advanced distress falling by 37%, while the whole of the UK saw an increase of 19%.

In Scotland, only real estate & property (3% rise), construction (up 2%) and professional services saw an increase in ‘significant’ distress since the previous quarter. Printing and packaging showed the biggest improvement (down by 11%), followed by sports and health clubs (6% fall) and food and drug retailers (down by 5%).

Mr Pattullo added: “There is often a lag between the rising cost of living and impact on businesses. Already, people are seeing prices for food and fuel increasing, and by the next energy hike in the autumn, this will have filtered through to almost every sector. While discretionary spend will be affected first, we fear that all types of businesses will feel the impact of consumers tightening their belts as strain on household incomes is felt.

“In the face of rising inflation, the removal of government pandemic support, tax increases and the challenge of ongoing Covid staff absenteeism, we urge directors to seek professional advice at the first signs of distress when more options will be open to them.”