RCS - Begbies Traynor - Latest Red Flag Alert Report for Q4 2024

Begbies TraynorAnnouncement

24/01/2025 07:00

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RNS Number : 5233U  Begbies Traynor Group PLC  24 January 2025

 

24 January 2025

 

Historic jump in the number of firms in critical financial distress

 

Less than three months after the Budget, critical financial distress climbs by
50% to 46,853 businesses

 

 

·    The number of UK businesses in 'critical' financial distress rose by
50.2% quarter-on-quarter to 46,853 in Q4 2024 (Q3 2024: 31,201)

·    The sharp quarter-on-quarter increase was driven by substantial
growth in distress in 21 of the 22 sectors covered by Red Flag Alert

·    In particular, consumer facing sectors highlight the concerning
picture in the UK economy, with Hotels & Accommodation (+83.6%), Leisure
& Cultural Activities (+76.5%), General Retailers (+47.6%) and Food &
Drug Retailers (+37.4%) all in worrying states of financial health

·    The number of UK businesses in 'significant' financial distress rose
3.5% on the prior quarter to 654,765 (Q3 2024: 632,756)

·    Year on year, 'significant' financial distress increased 21.3% (Q4
2023: 539,900), as all 22 sectors experienced double-digit growth in 2024

·    At the end of 2024, the sectors experiencing the highest numbers of
businesses in 'significant' financial distress include the Construction
(97,603), Support Services (90,375), and Real Estate & Property Services
sectors (75,394)

 

The latest "Red Flag Alert" report from Begbies Traynor reveals a worrying
surge in the number of businesses in the UK entering 'critical' financial
distress in the final quarter of 2024. In Q4 2024, 'critical' financial
distress rose by 50.2% to 46,853 companies, underscoring a deteriorating
outlook.

 

Of the 22 sectors covered by Red Flag Alert, 21 saw a noticeable increase
quarter-on-quarter in the number of businesses in 'critical' financial
distress. The growth in distress was particularly concerning in consumer
facing sectors with Hotels & Accommodation (+83.63%), Leisure &
Cultural Activities (+76.46%), General Retailers (+47.6%) and Food & Drug
Retailers (+37.4%) all increasing significantly.

 

This latest research shows a worsening UK economy as we start the new year. In
key bellwether sectors, there has also been worrying growth in 'critical'
financial distress with the Construction (+58.0%) and Real Estate &
Property Services (+63.4%) sectors now representing nearly 30% of all the
businesses in 'critical' financial distress.

 

After another challenging year, 'significant' financial distress rose by more
than a fifth in Q4 2024 versus the same period in 2023 (Q4 2023: 554,554), as
the uncertain economic environment continued to add pressure on businesses.
Importantly, this distress was felt across every corner of the economy as each
of the 22 sectors monitored by Red Flag Alert experienced an increase of more
than 15% over the year.

 

At the end of 2024, the sectors experiencing the highest numbers of businesses
in 'significant' financial distress include the Construction (97,603), Support
Services (90,375), and Real Estate & Property Services sectors (75,394).

 

Julie Palmer, Partner at Begbies Traynor, said:

"As we start a new calendar year, there is very little to be excited about.
Across nearly every sector, there has been a unprecedent level of growth in
the number of firms who are at serious risk of entering insolvency in the next
12 months. The fact that the distress is being felt across almost every corner
of the economy highlights how difficult the outlook is for UK businesses right
now.

 

"After a disappointing Christmas, consumer-facing industries, in particular,
are feeling the strain, with rising operational costs and higher wages adding
to an already difficult situation. With many such businesses already operating
on thin margins, I fear the current situation will undoubtedly push some over
the edge.

 

"Indeed, at a time when consumer confidence is so volatile and borrowing costs
look likely to be structurally higher for the foreseeable future, the
situation feels very precarious. Sadly, this has only been exacerbated by the
tax rises and increase in national minimum wage levied on businesses during
the October 2024 UK Budget which means the financial strain on businesses will
only increase later this year.

 

"Even at this very early stage, the outlook for the rest of 2025 is uncertain,
at best. Many companies are clearly struggling to adapt to the compounding
challenges they face and there is no easy fix which will be very unsettling
for businesses who are struggling to tread water already.

 

"So, in the absence of a reduced tax burden and a strong economic recovery, I
expect the number of insolvencies to continue to rise in 2025 as firms
struggle to cope with a perfect storm of rising costs, financial instability
and fluctuating market conditions."

 

Ric Traynor, Executive Chairman of Begbies Traynor, commented:

"After a historic rise in 'critical' financial distress in Q4 2024, it's clear
that many distressed UK businesses are finding it almost impossible to
navigate the challenges they face as we start 2025.

"For many businesses which were already dealing with weak consumer confidence
and higher borrowing costs, the increase in national insurance contributions
and the national minimum wage, announced at the last Budget, could be the last
straw, particularly in labour-intensive sectors like retail and hospitality,
who typically operate on razor thin margins.

"For many of these companies, the situation is dire, and this additional
burden will almost certainly result in business leaders taking the decision
to, at best, reduce headcount or, worse, wind down their operations in the
face of insurmountable challenges.

"With the possibility of an emergency tax raising Spring Budget still not off
the table, combined with likely increases in tariffs from the new US
administration, the outlook for the UK is very uncertain.

"So, I fear 2025 could end up being a watershed moment where thousands of UK
businesses 'call time' after struggling to survive for years."

 Top 10 Sector Ranking - Critical                                                         Top 10 Sector Ranking - Significant Financial Distress

 Financial Distress
 1.      Construction                            6,830                                    1.                      Construction                            97,603
 2.      Support Services                        6,711                                    2.                      Support Services                        97,506

 3.      Real Estate & Property Services         6,697                                    3.                      Real Estate & Property Services         75,394
 4.      Professional Services                   3,555                                    4.                      Professional Services                   57,593

 5.      General Retailers                       3,264                                    5.                      General Retailers                       44,953
 6.      Telecommunications & IT                 2,778                                    6.                      Health & Education                      44,128
 7.      Health & Education                      2,724                                    7.                      Telecommunications & IT                 41,672
 8.      Media                                   1,941                                    8.                      Bars & Restaurants                      17,134
 9.      Bars & Restaurants                      1,756                                    9.                      Automotive                              17,059
 10.     Food & Drug Retailers                   1,522                                    10.                     Food & Beverages                        6,633

 Critical Distress by Region                                                      Significant Distress by Region
 1.                          London                         14,326                1.                  London                          182,250
 2.                          South East                     7,499                 2.                  South East                      112,394
 3.                          West Midlands                  5,600                 3.                  Midlands                        81,864
 4.                          North West                     4,927                 4.                  North West                      67,030
 5.                          Yorkshire                      3,191                 5.                  South West                      48,065
 6.                          South West                     3,127                 6.                  Yorkshire                       45,654
 7.                          East of England                2,790                 7.                  East of England                 42,347
 8.                          Scotland                       2,353                 8.                  Scotland                        32,696
 9.                          Wales                          1,340                 9.                  Wales                           19,270
 10.                         North East                     920            10.            North East                                  12,261
 11.                         Northern Ireland               776            11.            Northern Ireland                            10,873
 12.                         Misc                           4              12.            Misc                                        61

 

--ENDS--

For further information, contact:

 

 MHP Communications:                       07595 461 231

 Katie Hunt Charles Hirst Matthew Taylor   07827 662 831

                                           BegbiesCorporate@mhpgroup.com (mailto:BegbiesCorporate@mhpgroup.com)

 

Notes to Editors

About Red Flag Alert

 

Red Flag Alert has been measuring and reporting corporate financial distress
since 2004. It has become a benchmark on the underlying health of companies
across every sector and region of the UK.

Red Flag Alert's 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 the UK's leading insolvency
business, Begbies Traynor. The algorithm was refreshed in H1 2023 to enhance
the risk factors analysed in the data. The reported results have been
backdated to ensure the consistency of comparative data.

Algorithms which drive Red Flag Alert were improved at the end of 2023, with
companies now measured against a new scorecard of indicators to give greater
insight and accuracy into the health of businesses. Two years of work by data
scientists analysing eight years of data, taking into consideration pre,
during and post-pandemic insights to find signals and patterns indicating
businesses in distress, combined with AI tools, means that Red Flag Alert aims
soon to be able to predict how many companies in trouble will go on to fail.

The release refers to the number of companies experiencing "Significant" or
"Critical" problems, which are those that have been identified by Red Flag
Alert's proprietary credit risk scoring system which screens companies for a
sustained or marked deterioration in key financial ratios and indicators
including those measuring working capital, contingent liabilities, retained
profits and net worth.

 

Red Flag Alert is commercially available to all businesses, on an annual
subscription basis, to help them better understand risk and exposure and help
subscribers to plan for the future. Further information about Red Flag Alert
can be found at: www.redflagalert.com
(https://protect.checkpoint.com/v2/___http:/www.redflagalert.com/___.bXQtcHJvZC1jcC1ldXcyLTE6bmV4dDE1OmM6bzo4ZTc5ODZlN2FkODQwNmI1YzQ5OTYxZjk5MzM0NDBkMjo2OjJmOGM6ZTY4ZTBlN2IyMzYzZDI0MTVmYzgwMmEyYjhiN2E4MTYwZWI3NTcxNzk2OThkNTgyYWY1NTk4YmUyYzA0ZjhkOTpwOlQ6Tg)

 

Economically active businesses exclude those that are flagged by Companies
House as being, Non-trading, Listed for Strike off / Strike off pending,
Insolvent or Dissolved. Companies where there is insufficient information
available for RFA to assign a health rating are also excluded.

 

About Begbies Traynor Group plc

 

Begbies Traynor Group plc is a leading UK advisory firm with expertise in
business recovery, advisory and corporate finance, valuations, asset sales and
property consultancy.

We have over 900 fee earners operating from 45 locations across the UK,
together with four offshore offices. Our multidisciplinary professional teams
include insolvency practitioners, accountants, lawyers, funding professionals
and chartered surveyors.

·    Business recovery

o  Corporate and personal insolvency; business restructuring and turnaround;
contentious insolvency; creditor services

·    Advisory and corporate finance

o  Debt advisory and finance broking; corporate finance; special situations
M&A; financial advisory

·    Valuations

o  Property, business and asset valuations

·    Asset sales

o  Property, plant and machinery auctions; property and business sales agency

·    Property consultancy

o  Building consultancy; transport planning; commercial property management;
insurance and protection

Further information can be accessed via the group's website at
https://ir.begbies-traynorgroup.com/ (https://ir.begbies-traynorgroup.com/)

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