Distress rates ‘level off’ for North West firms but dangers lurk ahead for 55,000 companies

Business Health Statistics

| August 5th 2022

More News by Gary Lee

Date Published: 5th August 2022

Distress rates ‘level off’ for North West firms but dangers lurk ahead for 55,000 companies
  • Negligible increase in significant distress from Q1 to Q2
  •  Just 67 more firms enter significant distress during period
  • Begbies Traynor says more than 55,000 firms remain in danger and  warns of challenges ahead during second half 2022

New data published today by Begbies Traynor (5th August 2022) indicates a short-term levelling off in distress rates for North West firms as company directors fight hard against the impact of spiralling inflation.

However, experts at Begbies Traynor say that despite the small increase in the number of firms entering significant financial distress during the past quarter (67), more than 55,000 businesses are on the brink.

It also found that 250 firms were in ‘critical distress’ in Q2 of 2022 – a year-on-year increase of 36% (up from 184).

The Red Flag Alert data, published by Begbies Traynor, has analysed the health of companies across the region for the last 15 years.

Today, it confirms more than 55,000 firms (55,183) remain in ‘significant distress’ with 23,516 being from Greater Manchester and 8,893 from the Liverpool City Region. This is a 12% drop on the same period last year (62,784) which followed a period of national lockdown.

Biggest falls in levels of significant distress amongst North West firms over the past 12 months have been in the Food & Drug retail sector (19% reduction), Health & Education (19%) and Wholesale (18%) as demand in these sectors continue to increase in the post-pandemic era.

Real Estate & Property (7,455), Construction (7,441) and Support Services (9,005) were the three sectors that contained the highest volumes of distressed firms from the 22 analysed in Q2 of 2022.

Nationally, more than half a million firms are now in significant financial distress (582,452).

Gary Lee, Partner at Begbies Traynor, said:

“It will be a relief for many businesses to see a levelling off in distress rates in the past quarter but it remains to be seen whether this trend continues and company directors should remain cautious. The 36% rise in the number of firms entering critical distress in our region is alarming.

“Many businesses have been agile in their response to rising inflation and hopefully will have planned for costs of raw materials in particular to continue rising during the remainder of this year.

“Smart directors have used the opportunity since the start of the year to look at their banking facilities and debt arrangements and have been proactive in restructuring their debts and operations.

“Ambiguity over which tax policies will be enacted in the UK looks set to continue until September when the new Prime Minister will be confirmed but we’ll already be most of the way through the third quarter by that point.

“As well as uncertainty over domestic politics, there’s the international aspect to consider including the situation in Ukraine and the increasing cost of energy as we progress into Autumn and Winter.

“Labour shortages and supply chain issues may also have an impact on the bottom line for a lot of companies and the working capital and cash availability will need to be monitored closely.

“Given these circumstances, it would be wise for company directors to stay alert during the remainder of the year and act quickly and decisively in the event of a sudden cashflow squeeze or demands from creditors.”


About the author

Gary Lee

Partner

Meet our Team of Experts

Gary is a Fellow of the Institute of Chartered Accountants in England and Wales and a Licensed Insolvency Practitioner with over 20 years experience in the profession.

He has worked extensively with Banks, Asset Based Lenders & Private Equity on mid market & SME assignments. He has a broad range of experience gained through a variety of assignments, working on formal insolvency appointments, informal workouts, debt negotiations and independent business reviews.

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