A record 527,000 business were in significant financial distress at the end of June, up 7% since the beginning of the year, according to research by Begbies Traynor which suggests this trend is set to accelerate
The firm’s Red Flag Alert quarterly report also recorded seven consecutive quarters of increased financial impairment, the longest period since the start of 2014.
Begbies Traynor said the rise in businesses in financial difficulty could have higher were it not for reduced court activity due to the pandemic. It points to a 40% fall in the number of County Court Judgments obtained in March, April and May this year, and a 73% drop in the number of winding up petitions lodged over the same period.
Julie Palmer, partner at Begbies Traynor, said: ‘Despite more than 30,000 businesses having fallen into distress since the start of the year, the real level of corporate underperformance is being concealed by inaction on distressed businesses in the courts.
‘With government initiatives to support businesses now winding down, we will start to see the true impact of coronavirus on the UK during the autumn.’
The data shows that in the real estate and construction sector, in the last quarter alone more than 17,000 businesses have fallen into distress, with 6% more commercial builders and 4% more house builders in significant financial distress.
The real estate sector posted a 19% increase in significant financial distress between Q2 2019 and Q2 2020, with a further 4% increase between Q1 2020 and Q2 2020. The construction sector also exhibited poor financial performance with a 9% year on year increase in distress and a 4% quarter on quarter increase.
At the end of Q2 2020 almost 16,000 automotive businesses were in distress – an increase of more than 1,000 since the same time in 2019.
Sports and health clubs were also badly hit by pandemic restrictions. Over the past year more than 1,000 additional businesses within this sector have encountered significant financial distress, with almost 10,000 of these businesses adversely affected at the end of Q2.
The number of online retail businesses in distress has increased by 7% (since the start of the year, with a 7% increase for fashion retailers and 6% increase in high street retailers.
The picture is similar in the bars and restaurant sector, with a 6% increase in financial distress since the start of the year and a 4% increase in the last quarter.
Ric Traynor, executive chairman of Begbies Traynor Group, said: ‘There has been unprecedented company support measures from the Treasury during the pandemic. But unfortunately, as the chancellor himself has admitted, not all businesses and jobs can be saved.
‘Many of these support measures will have simply delayed the inevitable, with the can being firmly kicked down the road.
‘Many businesses will have to deal with a toxic mix of reduced sales and increased levels of debt, plus the complications of dealing with staffing levels that cannot be supported by the level of business going forward.
‘Change has been coming for some time before coronavirus, and after one and a half years of consistently increasing levels of distress, this pandemic has accelerated the rate of change.
‘We have already seen some businesses in the affected sectors make significant alterations to their structures but unfortunately we expect to see many more cease to trade in the coming months.’