Rising debt and inflation fuel surge of Yorkshire businesses in financial distress

‘Significant’ distress refers to businesses showing deterioration in key financial ratios and indicators including those measuring working capital, contingent liabilities, retained profits and net worth.

Across the UK, ‘significant’ distress was up by 8.5 per cent in the second quarter of this year compared to the same period last year, with a total of 438,702 businesses affected.

The three sectors most severely affected by financial distress nationally were support services, construction and real estate and property services.

The latest data is sourced from a new Red Flag dataset that involved deep dive analysis of eight years of company data by data scientists over the past two years to track key factors behind company distress and failure rates.

Of the 22 sectors monitored by Red Flag Alert, in Yorkshire nine reported increases of over 10 per cent in the number of companies in significant financial distress compared with a year ago.

Sectors suffering the biggest increases in significant distress in the region, compared to last year, included sport and health clubs (16.7 per cent), property businesses (14.2 per cent) and retailers (14.6 per cent) which accounted for 21 per cent of this distress (6,074 businesses).

Other sectors which saw escalating early distress were health and education (13.4 per cent) and media (11.3 per cent).

Julian Pitts, regional managing partner for Begbies Traynor in Yorkshire, said: “Higher interest rates have hit both consumers and businesses hard and there are mounting concerns that the situation may become worse in the second half of this year in Yorkshire and across the UK, when winter sets in and energy costs go up.

“Consumers are feeling the pinch and cutting back not just on discretionary spending but also on essentials to counteract higher mortgage and loan repayments.

"Meanwhile businesses are also seeing the cost of their debt rising and, still reeling from the effects of the pandemic and set back by higher energy bills and the effects of the war in Ukraine, it’s no wonder that the number of distressed companies has jumped since last year.

“Given the wider economic uncertainty we fear that time is simply running out for many businesses and we expect a surge in company collapses with the likely failure of many ‘zombie businesses’ in the coming months.”

He added: “Our advice to businesses is to monitor their financial position carefully and seek advice from qualified restructuring professionals as soon as any problems become apparent to avoid them escalating.”

Begbies Traynor’s Red Flag Alert has been measuring and reporting corporate financial distress since 2004. It looks at the underlying health of companies across every sector and region of the UK.

The 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 Begbies Traynor.