Red Flag raised on soaring numbers of firms in 'significant' financial distress

Every sector of business is affected, in the wake of rising inflation and falling retail sales.

Across the Midlands as a whole there were 54,866 firms in 'significant' distress – up 25 per cent against 44,007 for the same quarter in 2016 – according to the latest research from business recovery experts Begbies Traynor,

Its Red Flag report shows figures surging 27 per cent in Wolverhampton and 28 per cent in West Bromwich, while in Dudley it has soared by a third.

Mark Malone, partner at Begbies Traynor's Birmingham office, said: “The number of firms experiencing ‘significant’ financial distress has reached unprecedented levels over the past 12 months, as businesses in search of growth have overstretched, perhaps taking more risks because of continued low interest rates.

"Following the latest economic updates, showing everything from rising inflation and slumping retail sales to the further decline of the construction sector, our data suggests that almost all sectors and industries have been adversely affected.

“With consumers continuing to borrow using credit cards, personal loans and car finance at a rate almost five times faster than their growth in earnings, our biggest concern is the UK’s ever-expanding consumer credit bubble; which could burst at any time."

Begbies Traynor classes firms in 'significant' distress as those hit by minor County Court judgements, for less than £5,000, or suffering from a marked downturn in profits, working capital and net worth.

Its Red Flag report shows that in the third quarter of the year – between July and September – the number of firms in significant distress in Wolverhampton rose to 1,382, up 27 per cent on the same period last year. In Dudley it was up 33 per cent to 493, while in West Bromwich it rose 28 per cent to 234.

In Walsall the number in significant distress was 873, up 16 per cent on a year ago, while across Staffordshire it rose 23 per cent to 5,875.

In Birmingham, it was up 22 per cent to 6,749 firms. Amongst those sectors faring worst were travel and tourism, construction, food and drug retailers and industrial transportation and logistics.

Nationwide wide the company health monitor found 448,011 businesses experiencing ‘significant’ levels of financial distress at the end of the quarter, up 27 per cent compared the same period last year.

The research highlights that almost 250,000 of these companies ended the period with negative net worth, representing a sizeable population of so called “zombie” companies that have managed to survive thanks to the prolonged low interest rate environment and flexible labour market, but which do not have adequate working capital to fund any growth or absorb rising input prices.