Big rise in number of firms in 'significant financial distress' says Red Flag report

Across the Black Country the number of firms under pressure has soared by around 25 per cent over the last 12 months, according to the latest Red Flag report from insolvency experts Begbies Traynor.

Nationwide the number of companies experiencing 'significant financial distress' by the end of June had soared to almost 330,000, the largest number of businesses in significant distress for at least five years.

Property and construction firms were the worst hit as the UK property market slows down, say the business recovery experts, while small and medium sized companies (SMEs) made up most of those in distress.

Ric Traynor, executive chairman of Begbies Traynor, said: "Our Red Flag research shows that a recent loss of momentum in the economy is putting increased financial pressure on UK businesses, with SMEs bearing the brunt of this rising distress, as businesses contend with uncertainty over Brexit negotiations and an inconclusive election result, alongside rising costs.

Gareth Prince, director at Begbies Traynor's Birmingham office, said: “The rising levels of distress in the property and construction sectors indicate that these sectors are lacking strong foundations as they face headwinds from Brexit, the rising cost of imported goods and skills shortages which will drive further wage pressures.

“In the UK’s consumer facing industries, weak real wage growth and rising levels of personal debt continue to put a strain on the retail, bars, restaurants and leisure sectors, where many businesses have been reluctant to fully pass on the inflationary impact of the weakened pound and higher staff costs from the National Living Wage, for fear of losing customers on price in an increasingly competitive marketplace.

“As we enter the second half of 2017, it is worrying that so many businesses and particularly SMEs are facing such high levels of financial distress. These businesses are the backbone of our economy which may need to rely on a stronger than ever SME community to fuel its growth following Brexit, yet these figures indicate that many will struggle to fund increases in working capital and invest in growth.”

In Wolverhampton the report found 1,021 companies in significant distress, up 27 per cent on the same point a year ago. The worst hit area was Dudley, where the numbers had soared by 34 per cent to 322.

Across Staffordshire the number in significant distress had risen by 25 per cent to 4,338, while in West Bromwich it was also up 25 per cent, to 169. In Walsall it was up 18 per cent to 629.

In Birmingham 4,924 businesses in the city have faced some level of financial distress in the second three months of the year compared to 3,952 in the same period 12 months ago, while across the Midlands as a whole, 40,235 firms faced 'significant' financial distress in the second quarter of the year, compared to 32,954 last year – an increase of some 22 per cent.