Rise in 'levels of severe financial distress' for North East businesses
Data shows many sectors face worsening economic climates
Last updated 3rd Nov 2023
We are hearing how there has been a rise in levels of severe financial distress for North East businesses as many face a worsening economic climate.
According to the latest Red Flag Alert data from Begbies Traynor, they say with the continuing challenge of high interest rates and inflation, the third quarter of 2023 saw a hike of over 25% in levels of businesses in the North East experiencing advanced financial difficulties since the previous quarter.
But, Marianne O'Sullivan, Policy Manager at the North East Chamber of Commerce, said: "The latest data from our quarterly economic survey of our members has shown that across all indicators, there's been a 12 percent reduction in organisations reporting higher levels of concern. This is positive and it shows compared to last year, businesses are feeling a bit more confident in dealing with the challenges they're facing.
"Businesses are still concerned about issues like inflation, staff costs and interest rates. Long term we're still seeing staffing challenges and reduced cash flow which may be restricting the ambitions of businesses to invest in growth.
"We've also seen reduced investment with the cost of living crisis and businesses having limited resources, we're seeing some response to that. We've seen some internationally-trading firms struggling with exporting sales, manufacturing firms have reported some drops around international and domestic trade as well. On the other side, we've seen that energy prices have reduced."
Marianne also highlights which areas need focussing on to help businesses: "An important one is around skills because we've seen a lot around recruitment and staff shortages. We've asked for investment in further education and flexibility with the apprenticeship levy. We've also got to look at tackling ill-health because we know in the North East, ill-health is having an impact on high levels of economic inactivity which is reducing people's ability to enter the workforce.
"We've asked for support around business rates, research and development to encourage businesses to innovate. We know net-zero is going to be a big issue nationally but within the North East it's a key opportunity to grow the sector, so we've asked for an infrastructure strategy that focusses on energy and how that can open key opportunities for the North East."
Red Flag Alert data
The data showed construction, real estate and property services, support services and general retailers saw the highest numbers of North East businesses in critical distress.
In the North East, 119 construction firms experienced advanced financial problems in Q3 2023, an increase of 58.7% since the previous quarter. Real estate and property services firms accounted for 94 critically distressed businesses in the region (up 113.6% on Q2 2023), while support services added a further 91 (up 24.7%) and general retailers another 51 businesses (up 41.7%).
The sectors in the North East which saw the greatest falls in critical distress since the previous quarter were: food and beverage (down by 50%); bars and restaurants (-37.2%); printing and packaging and utilities (both down by 33.3%); and telecoms and IT (-30.3%).
Figures for the latest quarter show that 658 businesses in the region saw advanced or ‘critical’ distress, however, this represented a fall of 1.4% compared with the same period the previous year.
Looking at early or ‘significant’ distress, in the North East, there was a quarter-on-quarter increase of just under 6.2% to more than 8,480 businesses in the third quarter. 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 by 5.1% since the same period the previous year.
Across the UK, critical business distress increased by 25% on the previous quarter and by almost 2% year-on- year, to affect 37,722 firms nationally. Almost half a million companies (478,176) nationwide saw incidences of significant distress rise with an uplift of 8.7% quarter-on-quarter, and by 4.7% compared with Q3 2022.
Andrew Little, partner for Begbies Traynor in the North East, said: “There’s no doubt that businesses both in the North East and across the UK are facing unprecedented pressure with high inflation rates continuing to bite, along with spiralling operating costs and a drop in customer demand. For many, the cost of debt is proving to be the final straw, pushing them to the very edge of failure.”
Partner Gillian Sayburn adds: “Many companies are particularly vulnerable at the current time as they continue to fight to recover from the twin challenges of the pandemic and the cost of living crisis. Consequently, we are seeing levels of both early and advanced distress escalating since the last quarter. We once again encourage directors of businesses which are starting to suffer from financial problems to turn to insolvency professionals like us for advice as soon as they can, before problems spiral out of control.”