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Business distress already rising across regional economy before Covid-19 outbreak, report reveals
Business distress was becoming more prevalent across every sector of the economy, both in Yorkshire and in the UK as a whole, immediately before the outbreak of the coronavirus pandemic in the country, according to the latest research from leading independent insolvency firm Begbies Traynor.
Published today (17 April 2020), the firm’s latest quarterly Red Flag Alert data monitored the financial health of UK companies in the first quarter of the year, immediately before the covid-19 crisis took hold in Britain. The research shows levels of distress rising both quarter on quarter and, for most sectors, year on year in Q1 2020.
In Yorkshire, two of the industries hardest hit by social distancing measures – bars and restaurants, and real estate – saw a 10% and 13% hike in distress levels respectively in the first three months of this year compared to the same period in 2019, leaving them ill-equipped to withstand the financial consequences of the pandemic. Almost 1,400 bar and restaurant businesses and more than 3,000 estate agents and other property services firms in the region were already suffering from financial problems by the time the full lockdown was put in place across the country at the end of March.
By Q1 of this year, Yorkshire had a total of 30,683 financially distressed businesses, up by 5% on Q1 2019 and by 4% on the previous three months. Across the UK as a whole more than half a million (509,314) companies were already in financial distress, a figure that had climbed by 3% since the previous quarter and by 5% year on year.
The ‘significant distress’ measured in Begbies Traynor’s report refers to companies with relatively minor financial problems, such as having CCJs of less than £5,000 filed against them, or showing a marked deterioration in key financial ratios and indicators. It is often viewed as a warning of more serious financial problems to follow.
Julian Pitts, regional managing partner for Begbies Traynor in Yorkshire, said: “In the face of the fastest and most severe global economic crisis ever seen, it is extremely worrying that swathes of businesses, the majority of them SMEs, were already suffering from financial distress, making post- covid-19 recovery a far less likely prospect for those firms.
“Sectors such as hospitality and property in particular have been sent reeling by the social distancing measures that have forced the temporary closure of their businesses, and unfortunately it’s likely that only robust and resilient firms will be able to pick themselves up from this as the economy continues in freefall.”
He added: “The unprecedented Government measures to protect the income of both individuals and businesses are a welcome intervention, but while it may be the salvation of stronger organisations, state support is likely to have the effect of simply delaying the inevitable for too many companies and we expect to see a significant rise in insolvencies.
“The best current advice for business owners is to thoroughly research all the forms of help that are available, from investigating their insurance cover and talking to the bank to calling on the expertise of professional advisers, in order to gain vital breathing space in the face of these immense challenges.”