Almost 12,000 West Midlands businesses in ‘significant’ financial distress

Thousands of businesses in the West Midlands found themselves in ‘significant’ financial distress during the past three months (April–June), with support services businesses most impacted.

Figures from Begbies Traynor’s Red Flag Alert data for Q2 2020, which monitors the financial health of UK companies, reveals that nationally, a record 527,000 businesses are in significant financial distress – the seventh consecutive quarterly increase, and a rise of 33,000 since the beginning of the year.

The firm is also warning that the true number could have been much higher, was it not for reduced court activity due to the coronavirus pandemic, which has substantially reduced the number of CCJs and other legal action being taken against indebted companies.

In the West Midlands, there are more ailing firms in key towns and cities compared to the same period last year.

Birmingham and Wolverhampton both saw significant year-on-year increases of 12 percent and 13 percent respectively, with Birmingham’s five percent quarterly increase seeing the number of ailing firms reach over 8000 – now 8052.

Walsall saw a year-on-year increase of 10 percent, to 1152 firms, which was also the highest quarterly rise of seven percent.  Stafford’s business distress increased five percent over the past year – the only area to hold steady at 0% year-on-year was Dudley, although the Black Country town saw a one percent quarterly increase.

Looking at the sector picture for the West Midlands, support services businesses are most affected, with 2227 companies across the region in financial distress, which is up 11 percent on Q2 2019.  In addition, the real estate & property sector has been hit hard, experiencing significant year-on-year increase of 22 percent increase compared to the same period in 2019, with 1212 firms in difficultly.

Mark Malone, partner at Begbies Traynor in the West Midlands, said: “These are undoubtedly the toughest of times for all businesses. While the latest figures from our Red Flag Alert show that there has been a relatively small increase in the number of ailing companies here in West Midlands over the past quarter, the true picture of financial distress may be concealed by inaction on insolvent and distressed businesses in the courts. This means we are more likely to see the real impact of the pandemic during the second half of 2020.

“There have been unprecedented company support measures from the Treasury during the pandemic, with both the furlough scheme and access to government backed funding schemes. But unfortunately, as the chancellor himself has admitted, not all businesses and jobs can be saved.  While it is likely that this situation will get worse for many businesses before it gets better, those businesses that have the capital and the management ability will be better placed to adapt to the ‘new normal’.

“Even before the crisis hit, change had been coming, but the pandemic has increased the pace of this change. We have already seen some businesses make significant alterations to their structures and we’ll expect to see more in the coming months. But a crisis can be an opportunity – we’re in for hard times, but if this is a catalyst for change it could result in a better, more sustainable future.”