‘Creeping tide’ of business distress puts South Yorkshire SMEs under threat

Kris Wigfield, partner at Begbies Traynor

Business distress has continued to rise in Sheffield, increasing by 1% in the last quarter of 2019 compared to the same period in 2018, according to the latest research from Begbies Traynor, the UK’s leading independent insolvency firm.

Published today (27 January 2020), the latest quarterly Red Flag Alert data, which monitors the financial health of UK companies, shows that a total of 3,575 firms in Sheffield and 29,520 firms in Yorkshire were in ‘significant’ financial distress compared with 3,535 firms and 29,088 firms respectively in Q4 2018. Since the EU referendum in June 2016, when 22,161 Yorkshire companies were suffering financial problems, the number of distressed businesses in the region had risen by 33%.

Significant distress 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.

Across the UK as a whole, by Q4 of 2019 financial distress had risen by 3% year on year and by 40% since the referendum three years ago, affecting almost half a million (494,000) businesses nationally.

According to the Office for National Statistics, before the 12 December general election, the UK’s GDP fell by 0.3% in November, with most major sectors of the economy apart from construction recording a drop in output, including services such as retail, hotels and finance.

The Red flag Alert data reflects the downward economic trend, with many of Sheffield’s service sectors experiencing a year-on-year hike in business distress in Q4 2019. Among them are bars and restaurants, which saw 23% increase since Q4 2018, affecting 159 businesses in the city. Retailers also saw a 10% rise in distress levels, with 239 firms in trouble. Real estate and property services saw an increase in distressed firms of 7%.

Kris Wigfield, managing partner at Begbies Traynor Sheffield, said: “Although the general election has lifted some of the political uncertainty that has held back business and household spending, the long term picture for the economy looks set to be one of relative weakness.

“The creeping tide of business distress that we are experiencing is extremely worrying, particularly across the region’s service sectors, which have traditionally been dominant and resilient industries.

“For already hard pressed smaller businesses, rising debt levels can often be the final straw that leads to more serious problems. The best advice for SMEs in the current economic climate is to keep a very tight control on cash flow and to seek advice sooner rather than later if they are experiencing financial problems.”