Companies in Scotland are bucking a trend of increased business failure in the rest of the UK but must be wary of the impact of the energy price crisis and the war in Ukraine, a new report has found.
Scottish businesses facing “advanced distress” – who faced serious risk of collapse – fell by 37% compared to last year, according to the latest Red Flag Alert.
This compared to the rest of the UK where there was a 19% rise in businesses at risk of failure, according to the annual report published today by insolvency firm Begbies Traynor.
Property and construction faring worse
While construction and hospitality companies across the UK were the worst affected as they faced the prospect of Covid loan repayments coming due, other sectors in Scotland saw a small increase in the likelihood of business failure in the most recent three months. Real estate and property rose 3% in the index compared to the last quarter of 2021, while construction, up 2%, and professional services saw an increase in “significant” distress since the previous quarter.
However, companies involved in printing and packaging showed the biggest improvement, with risk of collapse decreasing by 11%, followed by sports and health clubs with a 6% fall and food and drug retailers, down by 5%.
Ken Pattullo of Begbies Traynor said the signs in Scotland were “encouraging” but warned of more challenging times ahead as the cost of living crisis reduces consumer spending power.
“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,” he said
“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.”
Mr Pattullo said while companies in Scotland seem to have weathered the previous storm of the pandemic better, that there was worse to come.
“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.”