Critical distress levels fall while less severe problems push SMEs to tipping point – Begbies Traynor
YORKSHIRE’S level of severe business distress is falling more rapidly than in almost any other UK region, according to the latest quarterly Begbies Traynor Red Flag Alert research.
The research, which monitors the financial health of UK businesses, showed that incidences of very serious or ‘critical’ business distress in Yorkshire dropped by 18% in the three months to June this year, compared to the first three months of this year, affecting 196 businesses in Q2 and 240 in Q1 of 2014.
Across the rest of country, an average fall in serious distress of 10% was recorded. Only the Midlands saw a more dramatic improvement than Yorkshire, with a fall in ‘critical’ business distress levels of 19%. By contrast Scotland, Northern Ireland and the South West of England all saw incidences of serious distress rise, by 7%, 3% and 1% respectively.
Year on year – from Q2 2013 to Q2 2014 – Yorkshire saw a 3% decrease in distress compared with a UK national average drop of 9%.
The region’s more prolific but less severe ‘significant’ business distress showed a quarter on quarter increase of 3% (from 13,987 instances in Q1 2014 to 14,359 in Q2) set against a national average rise of 5%. Annually, however, ‘significant’ distress in Yorkshire was up by 29% compared to the second quarter of 2013. The UK average rise was 34%.
Begbies Traynor’s research reveals that levels of ‘significant’ distress have been primarily driven by smaller businesses (SMEs), which, nationally, saw a 40% rise in distress over the past 12 months to 217,855 businesses (Q2 2013: 155,253). Among larger organisations, distress levels fell by 9% to 19,507 over the same period.
Yorkshire’s construction industry continues to bear the brunt of financial distress in the region, accounting for almost a quarter (24%) of ‘critically’ distressed businesses: 38 construction companies in total.
The industry’s ‘critical’ distress levels fell by 3% in Yorkshire, compared to this time last year. However in construction, as in many other sectors in Yorkshire, ‘significant’ problems continue to mount. The building sector saw a year on year rise of 53%, with retailing, manufacturing and print and packaging all experiencing increases in ‘significant’ business distress of more than 40% compared to Q2 2013.
With an interest rate rise predicted for as early as November, Begbies Traynor believes that the extra financial burden is likely to trigger a rise in more serious distress levels among SMEs already weighed down by debt accumulated during the recession.
Julian Pitts, regional managing partner for Begbies Traynor in Yorkshire, said that while the steady decline in ‘critical’ distress in Yorkshire was welcome, the mounting instances of ‘significant’ distress were of serious concern, with the ability of businesses to secure funding playing a crucial role. “Access to funding is still a major issue for a huge number of SMEs,” said Pitts.
“Although traditional bank finance is now widely available for those firms fortunate enough to comply with mainstream lending criteria, it remains a different story for businesses in complex or challenged circumstances. Our latest Red Flag findings once again underline the critical importance for current government initiatives to increase the diversity of funding providers and to better signpost alternative business finance.”
He added: “The UK needs SMEs to be able to take on new orders, recruit staff and invest in growth if they are going to contribute to the broad-based economic recovery. But without adequate funding in place, this kind of investment can only be achieved by overstretching their finances, leaving them little leeway should things take a turn for the worse or if growth accelerates leading to greater working capital needs – a risky strategy at a time of growing political and monetary policy uncertainty.”
