Member Article

Rising debt and inflation fuel surge of Yorkshire businesses in financial distress

Yorkshire businesses are facing a growing burden of escalating economic pressures including rising interest rates and higher labour and materials costs, according to the latest Red Flag Alert data from leading independent business rescue and recovery specialist Begbies Traynor.

The report found that 29,261 businesses in Yorkshire were suffering early or ‘significant’ distress in Q2 2023, an 8% increase on the same period in 2022 and up 4.9% on the first quarter of this year. ‘Significant’ distress refers to businesses showing deterioration in key financial ratios and indicators including those measuring working capital, contingent liabilities, retained profits and net worth.

Across the UK, ‘significant’ distress was up by 8.5% in the second quarter of this year compared to the same period last year, with a total of 438,702 businesses affected. The three sectors most severely affected by financial distress nationally were support services, construction and real estate and property services.

The 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.

Of the 22 sectors monitored by Red Flag Alert, in Yorkshire nine reported increases of over 10% in the number of companies in significant financial distress compared with a year ago. Sectors suffering the biggest increases in significant distress in the region, compared to last year, included sport and health clubs (16.7%), property businesses (14.2%) and retailers (14.6%) which accounted for 21% of this distress (6,074 businesses). Other sectors which saw escalating early distress were health and education (13.4%) and media (11.3%).

Julian Pitts, regional managing partner for Begbies Traynor in Yorkshire, said: “Higher interest rates have hit both consumers and businesses hard and there are mounting concerns that the situation may become worse in the second half of this year in Yorkshire and across the UK, when winter sets in and energy costs go up.

“Consumers are feeling the pinch and cutting back not just on discretionary spending but also on essentials to counteract higher mortgage and loan repayments. Meanwhile businesses are also seeing the cost of their debt rising and, still reeling from the effects of the pandemic and set back by higher energy bills and the effects of the war in Ukraine, it’s no wonder that the number of distressed companies has jumped since last year.

“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.”

He added: “Our advice to businesses is to monitor their financial position carefully and seek advice from qualified restructuring professionals as soon as any problems become apparent to avoid them escalating.”

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