Distress rates ‘level off’ for Lancashire firms but dangers lurk ahead for almost 10,000 companies

  • Negligible increase in significant distress from Q1 to Q2
  • Just 97 more firms enter significant distress during period
  • Begbies Traynor says almost 10,000 firms remain in danger and warns of challenges ahead during second half 2022

New data published today by Preston-based Begbies Traynor (5th August 2022) indicates a short-term levelling off in distress rates for firms across Lancashire as company directors fight hard against the impact of spiralling inflation.

However, experts at Begbies Traynor say that despite the small increase in the number of firms entering significant financial distress during the past quarter (97), almost 10,000 businesses are on the brink. 

The Red Flag Alert data, published by Begbies Traynor, has analysed the health of companies across the region for the last 15 years. 

Today, it confirms that 9,926 firms in Lancashire remain in ‘significant distress’. This is a 12% drop on the same period last year (11,254) which followed a national lockdown.

However the number of businesses in Lancashire falling into ‘critical distress’ has more than doubled with a 104% increase during the past 12 months (from 25 firms to 51).

Biggest falls in levels of significant distress amongst Lancashire-based  firms over the past 12 months have been in the Health & Education sector (24% reduction), Manufacturing (19%) and Automotive (18%) as demand in these sectors picks up in the post-pandemic era.

Real Estate & Property (1,303), Construction (1,431) and Support Services (1,320) were the three sectors that contained the highest volumes of distressed firms from the 22 analysed in Q2 of 2022.

Nationally, more than half a million firms are now in significant financial distress (582,452).

Chris Lawton, insolvency director at Begbies Traynor in Preston, said: “It will be a relief for many businesses to see a levelling off in distress rates in the past quarter but it remains to be seen whether this trend continues and company directors across Lancashire should remain cautious. 

“Many businesses have been agile in their response to rising inflation and hopefully will have planned for costs of raw materials in particular to continue rising during the remainder of this year.

“Ambiguity over which tax policies will be enacted in the UK looks set to continue until September when the new Prime Minister will be confirmed but we’ll already be most of the way through the third quarter by that point.

“As well as uncertainty over domestic politics, there’s the international aspect to consider including the situation in Ukraine and the increasing cost of energy as we progress into Autumn and Winter.” 

“Smart directors have used the opportunity since the start of the year to look at their banking facilities and debt arrangements and have been proactive in restructuring their debts and operations.

“Labour shortages and supply chain issues may also have an impact on the bottom line for a lot of companies and the working capital and cash availability will need to be monitored closely.  

“Given these circumstances, it would be wise for company directors to stay alert during the remainder of the year and act quickly and decisively in the event of a sudden cashflow squeeze or demands from creditors.”