Rise in firms at risk of failure across the West Midlands during 'turbulent times'

Experts have created a ‘Red Flag Alert’ to highlight firms in danger of going to the wall.

In Dudley there are 534 businesses in distress – up four per cent from April to June. Walsall has 1,453, up seven per cent, Wolverhampton is up by four per cent to1,724 and Stafford up four per cent to 785.

Property and real estate is a particular issue, with 28 per cent of firms in trouble in the worst affected area Dudley..

Begbies Traynor’s Red Flag Alert, which monitors the financial health of companies, says the figures reflect “turbulent times”.

Partner Mark Malone said: “Businesses are being battered on multiple fronts by increasing costs in energy, raw materials and labour.

“Coupled with the increased cost of borrowing and the prospect of rising corporation tax now around the corner, this is a very challenging time to be in business.”

He urged bosses experiencing difficulties to seek urgent help.

He said: “The economy, which had already been weakened by two years of pandemic disruption, now faces the very real possibility of a recession at a time when businesses were in desperate need of a sustained period of stability so they could get back on their feet.

“What we have instead is a situation where input costs are soaring and businesses that borrowed to survive for years and are stuck with levels of debt that they may be unable repay – especially with interest rates expected to rise to circa six per cent in 2023.

“We’d urge company directors and business owners who are worried about their ability to trade through this difficult period to seek professional advice in order to understand what steps they might be able to take to put them on a stronger footing.”

Nationally, the latest Red Flag Alert research for the third quarter of the year recorded almost 610,000 businesses in significant distress with companies faltering in an economically tumultuous period, characterised by rising costs and fragile confidence.

Representing an eight per cent year-on-year increase and a four per cent quarter on quarter rise, the data paints a worrying picture for UK businesses as a growing number are now falling victim to the exceptional economic pressures that continue to build in the economy.

With the official rate of inflation in excess of nine per cent, and inflation in the ‘real economy’ likely exceeding this, businesses now face the very real prospect of interest rates climbing above five per cent, a move that could force distressed businesses to enter insolvency as debt built up over the last decade and rapidly added to during the pandemic becomes unserviceable.

The most recent company CCJ data reveals further evidence of the level distress in the economy today. Often an early indicator of financial distress, the data shows the number of CCJs for the first nine months of 2022 was 63,831 – more than the entirety of either 2021 or 2020 and nearly the second highest total since 2010.

Similarly, Winding Up Petitions, a much more serious action lodged by creditors, were 237 per cent higher than the same period 2021, showing that companies are utilising aggressive legal enforcement measures to recoup debts.