TIDMBEG
Begbies Traynor Group PLC
22 January 2024
More than 47,000 UK businesses start 2024 on the edge of
collapse after critical financial distress jumps over 25% again
-- The levels of 'critical' financial distress jumped
dramatically in Q4 2023, up 25.9% on the prior quarter (Q3 2023:
37,772), leaving more than 47,000 businesses near collapse in the
UK at the start of 2024.
-- This represents the second consecutive period where critical
financial distress has grown by around a quarter.
-- 539,900 UK businesses are now in 'significant' financial
distress, 12.9% higher than Q3 2023 and 5.6% higher yoy (Q4 2022:
511,093).
-- Every sector of the 22 covered by Red Flag Alert saw critical
financial distress increase on the prior period, of the 22, 18 saw
at least double-digit growth.
-- In Q4 2023, critical financial distress grew rapidly in the
Construction (+32.6%), Health & Education (+41.3%), Real Estate
& Property Services (+24.7%) and Support Services (+23.6%)
sectors.
-- Serious concerns grow over the Construction and Real Estate
sectors which still represent nearly 30% of all businesses in
critical financial distress.
As we start 2024, the latest Begbies Traynor "Red Flag Alert"
report, which has provided a snapshot of British corporate health
for over 15 years, highlights the speed at which critical financial
distress is growing in the UK after the second consecutive quarter
of c.25% growth.
The rapid growth across every sector in the economy means 47,477
businesses are starting the new year in a precarious financial
position. Historically, a significant percentage of the businesses
identified by Red Flag Alert as being in critical financial
distress will enter insolvency over the course of the next
year.
Across every sector monitored by Red Flag Alert, the levels of
critical financial distress grew quarter-on-quarter in Q4 2023,
highlighting how the current economic backdrop is having a
detrimental impact on every corner of the UK economy. The key
sectors driving this increase continue to be the Construction, Real
Estate & Property and Support Services sectors, up 32.6%, 24.7%
and 23.6% respectively, alongside Health & Education
(+41.3%).
This worrying picture for UK businesses can also be seen in the
growing number of businesses in significant financial distress, up
nearly 13% in Q4 2023 versus the prior quarter. As at 31 December
2023, well over half a million companies (539,900) were affected.
The sectors driving this increase were Construction (+15.3%),
Health & Education (+19.2%), Real Estate & Property
Services (+21.3%) and Support Services (+9.1%).
Julie Palmer, Partner at Begbies Traynor, said: "After a
difficult year for British businesses that was characterised by
high interest rates, rampant inflation, weak consumer confidence
and rising and unpredictable input costs, we are now seeing this
perfect storm impacting every corner of the economy.
"Now that the era of cheap money is firmly a thing of the past,
hundreds of thousands of businesses in the UK, who loaded up on
affordable debt during those halcyon days, are now coming to terms
with the added burden this will have on their finances.
"For some, a better-than-expected Christmas may kick these
concerns down the road for a little longer, but the rapid growth in
the levels of critical financial distress point to an economy that
is waking up to the danger of debt ladened businesses in a higher
rates environment.
"As we saw in the previous quarter, the strain being placed on
companies has extended well beyond the consumer facing businesses
with bellwether sectors, like construction and real estate, now in
serious jeopardy as over 15,000 businesses face high risk of
failure.
"Sadly, for tens of thousands of British businesses who should
be looking ahead to 2024 with some degree of optimism, the new year
will bring a fight for survival as the debt storm that has been
brewing for years looks like it is breaking across the
country."
Ric Traynor, Executive Chairman of Begbies Traynor, commented:
"As we start the new year, the UK economy is in a difficult
position after a challenging 12 months for British businesses who
had to grapple with a number of unrelenting macro-economic
pressures that made the lives of business leaders difficult.
"As a result, we are seeing insolvency rates starting to
accelerate in the UK and our own empirical data highlights how this
trend is likely to speed up in 2024 as the environment takes its
toll on businesses.
"Later this year, we could see some respite for companies as
inflation looks like it may reach more palatable levels which in
turn should result in interest rates starting to climb down from
current heightened levels.
"Unfortunately, there are no signs of an easy fix and, with
geo-political uncertainty continuing to rise and a hike in the
national wage around the corner, the backdrop is hardly improving
for an economy that is still firmly in recovery mode
post-pandemic.
"For many businesses, I fear soldiering on in this environment
will prove to be one step too far and I expect thousands of
debt-laden businesses to start to fail this year."
Top 10 Sector Ranking - Critical Top 10 Sector Ranking - Significant
Financial Financial
Distress (Number of Companies Distress (Number of Companies
in Critical Financial Distress) in Significant Financial Distress)
1. Construction (7,849) 1. Construction (83,332)
2. Support Services (7,096) 2. Support Services (82,431)
3. Real Estate & Property Services 3. Real Estate & Property Services
(6,228) (62,176)
4. Professional Services (4,347) 4. Professional Services (51,412)
5. General Retailers (3,133) 5. Health & Education (35,979)
6. Telecommunications & Information 6. Telecommunications & Information
Technology (2,830) Technology (35,475)
7. Health & Education (2,719) 7. General Retailers (33,622)
8. Media (1,828) 8. Media (21,247)
9. Financial Services (1,373) 9. Financial Services (17,180)
10. Food & Drug Retailers (1,343) 10. Leisure & Cultural Activities
(14,983)
Critical Distress by Region Significant Distress by R egion
1. London (14,221) 1. London (154,312)
2. South East (7,884) 2. South East (92,819)
3. Midlands (5,696) 3. Midlands (66,389)
4. North West (4,951) 4. North West (55,928)
5. Yorkshire (3,303) 5. South West (39,618)
6. South West (3,271) 6. Yorkshire (37,133)
7. East of England (2,960) 7. East of England (34,307)
8. Scotland (2,245) 8. Scotland (26,082)
9. Wales (1,360) 9. Wales (14,591)
10. North East (836) 10. North East (9,577)
11. Northern Ireland (747) 11. Northern Ireland (9,069)
12. Misc (3) 12. Misc (75)
--S--
For further information, contact:
MHP Communications: 07595 461 231
Katie Hunt Charles Hirst Matthew 07827 662 831
Taylor BegbiesCorporate@mhpgroup.com
Notes to Editors
About Red Flag Alert
Red Flag Alert has been measuring and reporting corporate
financial distress since 2004. It has become a benchmark on the
underlying health of companies across every sector and region of
the UK.
Red Flag Alert's algorithm measures corporate distress signals,
drawing on company accounts and factual, legal and financial data
from a wide range of relevant sources, including intelligence from
the UK's leading insolvency business, Begbies Traynor. The
algorithm was refreshed in H1 2023 to enhance the risk factors
analysed in the data. The reported results have been backdated to
ensure the consistency of comparative data.
Algorithms which drive Red Flag Alert have been improved and
updated for the latest report, with companies now measured against
a new scorecard of indicators to give greater insight and accuracy
into the health of businesses. Two years of work by data scientists
analysing eight years of data, taking into consideration pre,
during and post-pandemic insights to find signals and patterns
indicating businesses in distress, combined with AI tools, means
that Red Flag Alert aims soon to be able to predict how many
companies in trouble will go on to fail.
The release refers to the number of companies experiencing
"Significant" or "Critical" problems, which are those that have
been identified by Red Flag Alert's proprietary credit risk scoring
system which screens companies for a sustained or marked
deterioration in key financial ratios and indicators including
those measuring working capital, contingent liabilities, retained
profits and net worth.
Red Flag Alert is commercially available to all businesses, on
an annual subscription basis, to help them better understand risk
and exposure and help subscribers to plan for the future. Further
information about Red Flag Alert can be found at:
www.redflagalert.com
Economically active businesses exclude those that are flagged by
Companies House as being, Non-trading, Listed for Strike off /
Strike off pending, Insolvent or Dissolved. Companies where there
is insufficient information available for RFA to assign a health
rating are also excluded.
About Begbies Traynor Group plc
Begbies Traynor Group plc is a leading professional services
consultancy, providing services from a comprehensive network of UK
and off-shore locations. Our professional team include licensed
insolvency practitioners, accountants, chartered surveyors, bankers
and lawyers. We provide the following services to our client base
of corporates, financial institutions, the investment community and
the professional community:
-- Insolvency
o Corporate and personal insolvency
-- Financial advisory
o Business and financial restructuring; debt advisory; forensic
accounting and investigations
-- Transactional support
o Corporate finance; business sales agency; property agency;
auctions
-- Funding
o Commercial finance broking; residential mortgage broking
-- Valuations
o Commercial property, business and asset valuations
-- Projects and development support
o Building consultancy; transport planning
-- Asset management and insurance
o Commercial property management; insurance broking; vacant
property risk management
Further information can be accessed via the group's website at
www.begbies-traynorgroup.com
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END
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