Nearly 12,000 West Midlands businesses in ‘significant’ financial distress

The 11,830 businesses is an increase of 11 per cent from April to June last year.

The Red Flag Alert data for the financial health of UK companies in the quarter reveals that nationally a record 527,000 businesses are in significant financial distress – the seventh consecutive quarterly increase, and a rise of 33,000 since the beginning of the year.

The firm is also warning that the true number could have been much higher, was it not for reduced court activity due to the coronavirus pandemic, which has substantially reduced the number of county court judgements and other legal action being taken against indebted companies.

In the West Midlands, there are more ailing firms in key towns and cities compared to the same period last year. Birmingham and Wolverhampton both saw significant year-on-year increases of 12 per cent and 13 per cent respectively, with Birmingham’s five per cent quarterly increase seeing the number of ailing firms reach 8,052. Wolverhampton was up three per cent to 1,453.

Walsall saw a year-on-year increase of 10 per cent, to 1,152 firms and also had the highest quarterly rise of seven per cent. Stafford’s business distress increased five per cent over the past year to 675.

The only area to hold steady was Dudley with a fall of two on the year and a one per cent quarterly increase to 498.

Looking at the sector picture for the West Midlands, support services businesses are most affected, with 2,227 companies across the region in financial distress, which is up 11 per cent on the year. In addition, the real estate and property sector has been hit hard, experiencing significant year-on-year increase of 22 per cent compared to the same period in 2019, with 1,212 firms in difficultly.

Mark Malone, partner at Begbies Traynor in the West Midlands, said: “These are undoubtedly the toughest of times for all businesses. While the latest figures from our Red Flag Alert show that there has been a relatively small increase in the number of ailing companies here in West Midlands over the past quarter, the true picture of financial distress may be concealed by inaction on insolvent and distressed businesses in the courts. This means we are more likely to see the real impact of the pandemic during the second half of 2020.

“There have been unprecedented company support measures from the Treasury during the pandemic, with both the furlough scheme and access to government backed funding schemes. But unfortunately, as the chancellor himself has admitted, not all businesses and jobs can be saved. While it is likely that this situation will get worse for many businesses before it gets better, those businesses that have the capital and the management ability will be better placed to adapt to the ‘new normal’.

“Even before the crisis hit, change had been coming, but the pandemic has increased the pace of this change. We have already seen some businesses make significant alterations to their structures and we’ll expect to see more in the coming months. But a crisis can be an opportunity – we’re in for hard times, but if this is a catalyst for change it could result in a better, more sustainable future."