Business recovery specialist Begbies Traynor yesterday warned that Scotland’s economic recovery was not as “rosy” as expected, and said major challenges still lay ahead.
The firm’s latest Red Flag research report found an increasing number of businesses north of the border had suffered significant financial distress in the second quarter of this year.
“It is disappointing to see that the recovery in Scotland is still failing to gather pace,” said Ken Pattullo, Begbies Traynor’s group managing partner in Scotland.
The survey reported that 145 Scottish companies were facing “critical” problems in the period, meaning they are either the subject of legal decrees worth more than £5,000 or were in the process of being wound-up.
The figure was 22% higher than in the same period last year and was in stark contrast to a 9% year-on-year drop in critical cases across the UK as a whole.
The report also found a 31% increase in Scottish firms reporting “significant” distress, a state indicating that a business is suffering the early signs of financial distress.
A total of 12,655 Scottish businesses fell into the category in the three months to June, a 2% increase on the number reported in the first quarter of this year but slightly below the 34% rate seen across the UK as a whole.
Analysis of the Scottish figures show the construction and retail sectors struggled in the period, with both reporting a rise in critical distress cases.
However, there were better signs from the services sectors, with the proportion of bars and restaurants showing critical distress signs falling from 15% to 8% in the quarter and the hotels sector stabilising further.
Mr Pattullo said there was still a long way to go before Scotland’s economic recovery was secured.
“We’re concerned that in Scotland both levels of significant distress, indicating the first signs of financial difficulty, and critical distress indicating more severe problems have continued to show a marked increase year on year, leading us to believe that there may be more problems to come and the corporate picture for the country is not as rosy as we had hoped,” he said.
“The recovery phase is a notoriously dangerous time for SMEs who have had their savings depleted during the recession and may be tempted to overtrade during the upturn, leading to cash-flow problems.
“We urge businesses to continue to tightly control costs, keep a close eye on the balance sheet and remain cautious.”