Monday, 28 October 2013

The good news and the..... not so good news for the Scottish economy

As a recent report suggests, the number of Scottish businesses in financial distress has fallen sharply however, given the improvement is apparently being led by larger companies and corporates, this represents both good news and not such good news for the Scottish economy.

In their recent report Begbies Traynor found a 13% fall in companies in distress in the third quarter, compared with the same period a year ago, but they also reported that larger companies were seeing "the lion's share" of the improvement.

Those still struggling, more often the smaller firms, the report said were "barely staying afloat".

The report also found large variances from sector to sector, with construction, logistics and property services experiencing bigger year-on-year falls in "significant" distress, however,  in sharp contrast the hospitality industry, as an example, recorded a big rise.

In the three months to September, instances of significant distress - so defined when a company has an outstanding court action or their accounts are of poor quality or are overdue for submission - fell from nearly 13,800 in the third quarter of 2012 to just under 12,000 in the latest quarter.

Scotland's businesses also experienced a 43% fall from last year in the most serious instances of "critical" distress - where decrees for more than £5,000 or winding-up petitions were presented or granted.

Overall distress levels in Scotland fell year-on-year at a much faster rate than the UK average.

However, by contrast, the same report also suggested a quarter-on-quarter rise of 23% in the number of Scottish firms suffering critical distress, compared with a UK average fall of 2%. 

So the falls in certain categories of distress are encouraging....the good news....the not so good news is the fact that levels of critical distress levels are rising compared to the rest of the UK and the fact that the improvements are being experienced largely by larger companies and limited to certain sectors is not such good news.

Perhaps the larger companies can take take their vital, smaller, suppliers and subcontractors with them on the road to recovery, allowing the green shoots to appear throughout the economy and across a wider range of sectors?

Recovery and growth of-course will bring its own threats particularly to the smaller operation that has most likely accumulated legacy debt incurred whilst barely remaining afloat, where they are already struggling with cash flow issues. In this instance, the welcomed higher levels of demand can prove very difficult to fund with existing low levels of working capital.

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