The number of businesses in ‘significant’ distress now stands at 481,000, leaping by 15,000 during Q4 2018, after a winter of uncertainty, according to the latest Red Flag Alert research.
The hardest hit sector was real estate and property, which not only saw a 7% (3,134) increase in the number of companies in significant distress from Q3 2018 to Q4 2018 but a 9% year on year increase, equating to 4,013 extra businesses.
The research data, which monitors the financial health of UK companies, also shows that thousands more companies in support services (4,245 a 4% increase), construction (2,599 a 4% increase) and professional services (1,027 a 4% increase) were plunged into significant financial distress during Q4 2018.
Surprisingly, the figures show that retail was not as badly affected as expected, with only a 2% increase in the number of companies in significant financial distress between Q3 and Q4 2018. This equated to an additional 529 businesses.
Such was the impact of the slow end to the year that the number of companies on the edge of insolvency in ‘Critical Distress’ has risen 25% in comparison to the same time in 2017 to 2,183.
Mark Halstead, Partner at Red Flag Alert, said:
“After a period of stability, the Red Flag Alert figures for Q4 show that UK businesses have experienced a difficult winter. Customers for traditional retailers are heading online and the uncertainty surrounding Brexit is having an effect on investment in sectors such as property and construction. It seems, for the last quarter at least, that big business is waiting for a decision on the terms of Brexit to see where investment is best placed, this is having a knock-on effect for consumer confidence.
2018 ended with declining footfall and low consumer spending. Major businesses such as HMV went into administration during the Christmas period and others like M&S and Debenhams experienced a poor Christmas trading period.
While the number of retailers in significant distress only increased slowly year on year since Q4 2017, we expect that this is due to heavy discounting giving retailers more cash and delaying financial issues. We expect a tough start to 2019. However, others including Next fared better, demonstrating that a quality product and well developed online and offline offerings will still see retailers thrive.
With 2019 set to be a year of change, businesses - not only retailers – will need to adapt and evolve to survive. UK businesses are operating in a brave new world where the environment for businesses and investors is set to undergo a significant change.
It is now more important than ever to monitor your customers and suppliers for early signs of financial distress. Businesses that miss this critical due diligence face the very real prospect of bad debt.”
Red Flag Alert has been measuring and reporting corporate financial distress since 2004, and over that time has become an industry benchmark of the underlying health of companies across every sector and region of the UK.
Through its unique algorithm, the Red Flag Alert measures corporate distress signals, drawing on factual legal and financial data from a wide range of relevant sources. The Red Flag Alert system provides:
To learn about the value of a Red Flag Alert subscription for your business, please get in touch with Richard West on richard.west@redflagalert.com or 0344 412 6699.