Member Article

How worried should North East enterprise be amid increasing ‘business distress’?

Releasing its quarterly Red Flag Alert data today (November 1), business rescue and recovery specialist Begbies Traynor is reporting an increase in business distress for firms operating in the region.

According to the report, 29% of businesses in the North East, are experiencing a rise in levels of ‘significant’ financial distress compared with the same period last year.

‘Distress’ in this sense relates to businesses with minor CCJs filed against them, or those showing a marked deterioration in key financial ratios, rose by 2% in the past three months.

This is slightly below the national figure of 3% more businesses adversely affected by ‘significant’ distress.

However, incidents of the more advanced or ‘critical’ distress, which refers to businesses which have had winding up petitions or county court judgements of more than £5,000 taken out against them, saw a fall of 19% in the North East since Q2 2017, and a rise of just 2% year on year.

Gillian Sayburn, director at Begbies Traynor’s Newcastle upon Tyne office, explains: “Overall, much of the recent economic data has indicated that the UK may be heading towards another downturn.

“While ‘critical’ distress in the region has seen a marked fall quarter on quarter, it is worrying that there has been such a large rise in levels of early or ‘significant’ distress, indicating that many businesses in the North East are likely to be facing financial difficulty in the months ahead.”

As in the second quarter of 2017, almost every sector in the North East saw a double digit rise in year on year levels of ‘significant’ distress. Many sectors experienced increases of more than 30% such as utilities (56%); professional services (52%); telecommunications (39%); support services (39%); and food and beverages (39%).

Gillian continued: “While there’s no doubt that the regional economy does appear to have slowed considerably across most sectors compared with the third quarter of 2016, it is encouraging that the quarter on quarter rises appear to have steadied.

“However, with little chance of businesses getting the continuity and certainty they need in order to grow and flourish, the run up to 29th March 2019 and beyond is likely to be a bumpy ride.”