Close to half a million businesses are currently in significant distress, a rise of 81% since the start of 2016, with the real estate and property sector particularly badly affected, according to research from Begbies Traynor
The firm’s Red Flag Alert report found 494,000 businesses in significant financial distress in Q4 2019, the highest number recorded by this research.
A considerable number of these companies were formed after 2014, suggesting that younger businesses are the most vulnerable to failure.
Across the 22 sectors monitored by the research, 15 sectors have witnessed increases in significant financial between the third and fourth quarter of 2019, compared to 13 sectors between Q4 2018 and Q4 2019, indicating that the latter quarter of 2019 has witnessed the broadest rise in financial distress.
The real estate and property sector has been particularly badly affected with a 13% increase in the number of businesses in significant financial distress between Q4 2018 and Q4 2019, the highest year-on-year percentage increase across any sector.
In particular, ‘property investors’, defined as businesses involved in ‘the buying and selling of their own real estate’, experienced a 30% increase in significant distress compared to the same period last year.
Distress levels were up 7% in the development of construction project sector and rose by 4% in the domestic construction sector.
The data also shows a 2% increase in the number of retailers in significant distress since Q4 2018 to 31,615, and there are signs that problems are starting to affect. online retailers, with an 8% year-on-year increase in the number of these retailers facing significant financial distress.
The report underlines the level of regional decline - although there are almost 126,000 London businesses in significant distress, in the other UK regions more than 358,000 businesses are wrestling with significant financial distress.
Julie Palmer, partner at Begbies Traynor, said: ‘Businesses and the UK economy as a whole will want to avoid a repeat performance of 2019, where distress increased to record levels on the back of ongoing uncertainty around Brexit.
‘These figures clearly demonstrate the impact of this indecision, and with political certainty and a clear Brexit path, UK businesses should, at last, be able to plan for 2020 with a greater sense of clarity.
‘However, the macro economic climate is complicated and we are seeing clear winners and losers, as evidenced by this latest Red Flag data. Currently, we do not know if the failing performance within some sectors is due to short term confidence issues, or more fundamental economic and structural issues.’
