New data on risk to business
More firms at risk of insolvency, says research
More Scottish companies are at higher than average risk of insolvency, according to insolvency and restructuring trade body R3.
Just under a fifth (19.6%) of firms were at “greater than usual risk” in January, rising to 26.6% by the end of the year.
Scotland’s business community, however, is relatively stronger than other parts of the UK with the the lowest proportion of firms at above-average risk.
Nearly a third (32.9%) of UK businesses were at greater than average risk of insolvency in December, up from nearly a quarter (24.7%) in January.
While some sectors performed better than others, all of the sectors monitored by R3 saw their proportion of firms at above-average risk of insolvency rise between the start and the end of 2017.
In percentage terms, the restaurant sector saw the smallest rise in elevated risk levels from January (22.5%) to December (24.3%), up 8%, while the figures for the hotel industry rose by 36% over the same period, from 20% to 27.2%.
The Scottish technology and IT sector finished the year with the highest percentage of firms at greater than normal risk of becoming insolvent, at 40%, up from 34.1% in January. The December figure is marginally higher than the overall proportion of all tech/IT firms in the UK in the elevated risk category (39.8%).
Tim Cooper, chairman of R3 in Scotland and a partner at Addleshaw Goddard in Edinburgh, said: “It’s not been the easiest of years for the Scottish economy, which is reflected in the overall increases in proportions of companies at higher than usual risk of insolvency.
“However, R3 has recorded rises in every sector it monitors in every part of the UK, so Scotland is not an isolated case in having seen its risk profile trend upward.
“A few factors likely to have played a part in the rise in risk levels include a hike in the National Living Wage, higher inflation, exchange rate fluctuations, and costs associated with owning or leasing commercial property.
“There is also some uncertainty around what the final Brexit deal will look like, which could cause headaches for Scottish businesses trying to plan ahead. Businesses need to know what the framework for EU imports and exports will look like in the next few years. A lot of Scottish firms rely on EU staff, too.
Looking ahead, he said: “Business advisers are anecdotally reporting more demand for their services from companies which are experiencing some degree of distress.”
The figures are from R3’s latest insolvency risk tracker. The tracker is compiled using Bureau van Dijk’s ‘Fame’ database and measures companies’ balances sheets, director track records and other information to work out their likelihood of survival over the next 12 months.