Member Article

North East businesses continue to struggle as rising debt and inflation adds to Covid ‘hangover’

After two years of pandemic disruption and income loss, many businesses in the North East are struggling to cope under the strain of repayment of bounce back loans, combined with the challenge of rising interest rates causing sharp rises in the cost of debt, according to Begbies Traynor. In the second quarter of 2023, there was an uplift in instances of early stage distress in the region of over 8% since the same period the previous year.

The latest Red Flag Alert data from leading independent business rescue and recovery specialist Begbies Traynor shows that in Q2 2023, there was a rise of 8.4% in the number of North East businesses experiencing early or ‘significant’ distress compared with the second quarter of 2022. 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 across the UK as a whole in the second three months of 2023 compared with the same quarter last year at the slightly higher rate of 8.5%.

Of the 438,702 businesses across the UK suffering from early distress in Q2 2023, just over 7,980 were in the North East. This represents a rise of 3.2% in businesses in significant distress in the region compared with the previous quarter of 2023, slightly below the 3.7% rise seen across the UK as a whole quarter on quarter.

This latest data is sourced from a completely new Red Flag dataset that has involved deep dive analysis of eight years’ company data by data scientists over the past two years to track key factors behind company distress and failure rates.

Andrew Little, partner for Begbies Traynor in the North East, said: “Businesses in the North East, and indeed across the UK, are facing a tsunami of problems with the burden of rising interest rates leading to unmanageable debt, and material and labour costs continuing to spiral along with the impact of the conflict in Ukraine, higher energy bills and continuing inflation. Given the wider economic uncertainty, we fear that time is simply running out for many businesses and we expect a surge in company collapses with the likely failure of many ‘zombie businesses’ in the coming months.”

Of the 22 sectors in the North East monitored by Red Flag Alert, only six reported decreases in the number of companies in significant financial distress compared with a year ago – these were printing and packaging (-20.7%); travel and tourism (-19.7%); and telecommunications and IT, professional services, media and hotels and accommodation (all fell by less than 4%). Sectors suffering the biggest increases in significant distress compared to last year included utilities (+75%); manufacturing (+23.3%); leisure and culture (+21.5%); bars and restaurants (+18.7%); and wholesale (+18.2%).

Fellow partner Gillian Sayburn added: “At a time when people are reining in spending as they face higher mortgage and loan repayments, discretionary spend sectors are particularly vulnerable and we are already seeing this demonstrated with growing numbers of consumer-facing companies in the North East experiencing distress.

“Given the myriad of challenges they are facing, businesses would be well advised to carefully monitor their financial position and turn to insolvency professionals for advice as soon as any problems become apparent to avoid them escalating.”

This was posted in Bdaily's Members' News section by Emma Kilmurray .