Scottish firms at ‘higher than average’ risk of insolvency jump in latest year

● Number of at-risk Scots businesses rises by more than a third over the period

The number of Scottish businesses at “higher than average” risk of insolvency rose sharply in 2017, according to a new survey out yesterday.

In December, 26.6 per cent of Scottish firms fell into this risky category compared with 19.6 per cent in January 2017 – a jump of well over a third – said insolvency and restructuring trade body R3. The Scottish technology and IT sector was at the greatest risk, the report said, with 40 per cent of firms within the sector at greater than normal risk of becoming insolvent – up from 34 per cent in January.

The December 2017 figure for Scotland is also marginally higher than the overall proportion of all tech/it firms in the UK in the elevated risk category, at 39.8 per cent.

Tim Cooper, chair of R3 in Scotland and a partner at Addleshaw Goddard in Edinburgh, said: “It’s not been the easiest of years for the Scottish economy, which is reflected in the overall increases in proportions of companies at higher than usual risk of insolvency.

“However, R3 has recorded rises in every sector it monitors in every part of the UK, so Scotland is not an isolated case in having seen its risk profile trend upward.”

He said Scotland’s business community could take some reassurance that it is in a relatively strong position compared with other parts of the UK: Scotland has the lowest proportion of firms at above-average risk of anywhere in the UK.

In all, nearly a third (32.9 per cent) of UK businesses were at greater than average risk of insolvency in December, up from nearly a quarter (24.7 per cent) in January.

Cooper added: “A few factors likely to have played a part in the rise in risk levels include a hike in the National Living Wage, higher inflation, exchange rate fluctuations, and costs associated with owning or leasing commercial property.

“There is also some uncertainty around what the final Brexit deal will look like, which could cause headaches for Scottish businesses trying to plan ahead. Businesses need to know what the framework for EU imports and exports will look like in the next few years. A lot of Scottish firms rely on EU staff, too.”

In percentage terms, the restaurant sector saw the smallest rise in elevated risk levels from January (22.5 per cent) to December (24.3 per cent), while the figures for the hotel industry rose to 27.2 per cent from 20 per cent.

Cooper said firms needed to stay vigilant and “on top of cash flow” as industry moved into 2018.