Scottish tech firms more at risk of failing, warns report

● Scottish tech firms at higher risk than UK average ● High ratio of start-ups flagged as contributing factor

Half of all technology and IT companies in Scotland are at higher than normal risk of insolvency in the coming year, according to new research.

Insolvency and restructuring trade body R3 released the figures from their insolvency risk tracker, showing 50.1 per cent of firms working in Scotland’s technology sector (around 5,600 businesses) were judged to be at an above average risk of insolvency in the next 12 months.

This is a significant increase from the same month last year, when figures showed that about a third of Scottish technology and IT firms (33.5 per cent) faced the same level of risk.

The steep rise was almost matched in data for the UK overall, which indicated 47.9 per cent of companies in the technology sector nationwide were now in the higher than normal risk category, compared with 33.6 per cent last year.

However, experts said the data was no cause for alarm, citing the particularly high ratio of fledgling businesses in the sector as a key contributor.

Tim Cooper, chairman of R3 in Scotland, said: “Although R3’s research indicates that a high proportion of Scottish tech firms are at greater than normal risk, there’s no need for panic in the Silicon Glen.

“For one thing, the technology and IT sector across the whole of the UK has the second-highest percentage of companies in the negative band out of all the sectors monitored by R3, behind professional services, so this is certainly not an issue confined to Scottish companies.

“Another factor to keep in mind is that it is young businesses which are at greatest risk of insolvency within their first few years, and the tech sector is renowned for its number of start-ups – not all new ideas succeed, while within the sector there is a strong ethos of trying something new if a previous venture doesn’t work out.”

Cooper urged technology entrepreneurs starting new companies to seek access to a wide variety of business skills to help their young firms grow.

He said: “In order for a tech companytosurviveandthrive, it needs more than just a great idea for an app or a gadget – founders need access to skills in areas such as people management, strategy, and credit controls.

“The sooner that any company in any sector seeks expert advice when it hits a bump in the road, the better its chances of survival, and it never hurts to have an objective outside view of what happens within a business.”

In other sectors the outlook appeared to be brighter, as one in three of all businesses registered in Scotland were judged at greater than usual risk of insolvency within a year, which compared favourably with nationwide figures of more than two in five companies.