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North East small businesses feeling the strain with financial distress on the rise in Q1

The rate of financial distress amongst the North East’s small businesses has registered a slight rise in the first quarter of 2017 as firms look to Brexit to slash red tape.

According to business recovery firm Begbies Traynor, the number of small businesses suffering ‘significant’ financial distress in the region increased 6% in the first three months of the year, marginally below the national average of 7% over the same period.

In total, Begbies’ latest Red Flag Alert data reveals that 5,700 of the North East’s SMEs experienced significant financial distress between January and March, up from 5,360 in the first quarter of 2016.

The outlook for the region’s bigger firms was cheerier with the number of larger companies undergoing financial distress remaining relatively steady, rising from 346 to 364 year-on-year.

Businesses undergoing ‘critical’ distress or more advanced signs of financial problems rose 19% quarter on quarter, 2% more than the national average; however, year-on-year the region registered a 5% fall, significantly outperforming the 7% rise registered nationally.

Begbies Traynor’s Newcastle upon Tyne Director, Gillian Sayburn, believes that the differing financial fortunes for the region’s small businesses compared to their larger and more established cousins paints a worrying picture for the wider economy, with many banking on an anticipated cut in EU red tape following Brexit to help relieve some financial burden.

She said: “With small businesses playing a vital role in the regional economy, it is extremely worrying to see them once again suffering to a greater extent than their larger counterparts.

“While for many years, SMEs have struggled under the growing demands of bureaucracy, much of which was believed to stem from the EU, it remains to be seen whether Britain’s impending exit will lighten their load.”

Sectors which have fared particularly badly in the last three months include businesses in the food and beverage industry, which marked a 38% increase in firms suffering distress, followed by a 33% increase for transport businesses and a 34% jump for utilities firms.

Sayburn questioned whether many small businesses across all sectors were equipped to manage the ongoing political and economic uncertainty, which is only set to worsen over the short-term after Theresa May called for a snap General Election this June.

She added: “Unfortunately, many smaller businesses do not have in place the experienced management team and robust structures of larger companies, making them less able to cope with political uncertainty and the vagaries of the economy – a real concern as we embark on what is expected to be a protracted Brexit negotiations process.”

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