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Northern Ireland sees hike in early distress as businesses struggle in the aftermath of Covid plus cost of living challenges

Businesses in Northern Ireland are continuing to see increases in early distress as they struggle to recover from loss of revenue during the pandemic combined with the added pressure of increased costs, plus rising interest rates and cost of debts. New research from leading independent business rescue and recovery specialist Begbies Traynor shows that, in the second quarter of 2023, the number of businesses in the province experiencing ‘significant’ or early distress rose by almost 6% compared with the same period the previous year.

The latest Red Flag Alert data, published by Begbies Traynor shows that in Q2 2023, there was a 5.9% rise in the number of businesses in Northern Ireland undergoing instances of significant distress compared with Q2 2022. This type of distress (which refers to businesses showing deterioration in key financial ratios and indicators including those measuring working capital, contingent liabilities, retained profits and net worth) also rose across the UK as a whole in the second three months of the year compared with the same period last year, but at the higher rate of 8.5%.

Looking at quarter-on-quarter figures, levels of significant distress in Northern Ireland grew by less than 0.5% in the second quarter of 2023 compared with the first quarter of 2023. The rest of the UK saw a 3.7% uplift in early distress since the previous quarter. Just 7,384 of the 438,702 businesses across the UK suffering from early distress in Q2 2023, were in Northern Ireland.

This latest data is sourced from a completely new Red Flag dataset that has involved deep dive analysis of eight years’ company data by data scientists over the past two years to track key factors behind company distress and failure rates.

Lawrence O’Hara, who leads Begbies Traynor in Northern Ireland, says: “The growing number of challenges currently facing businesses is among the worst I can remember – not only are many struggling to recover from the huge disruption of a two-year global pandemic, they are also having to find the resources to repay the Government’s bounce back loans which are now due, as well as seeing revenues fall during an ongoing cost of living crisis. Increasing interest rates are resulting in unmanageable debt, while inflation is remaining stubbornly high.

“Many of the directors we see tell us that they have struggled since the pandemic and, with ever-rising operational costs, many feel their businesses are no longer viable. In this tough economic landscape, it is no surprise that levels of distress are continuing to rise. Unfortunately, while Northern Ireland is faring relatively well, we fear there are likely to be growing numbers of business failures in the province as we head into the winter.”

Of the 22 sectors monitored in Northern Ireland by Red Flag Alert, only three reported decreases in the number of companies in significant financial distress compared with a year ago. These were: utilities (-16.9%); leisure and cultural activities (-9.1%); and manufacturing (-2.3%). Sectors suffering the biggest increases in significant distress compared to last year included financial services (+26%); travel and tourism (+ 19.5%); printing and packaging (+17.4%); food and beverages (+16.5%); and general retail (+15.2%).

Mr O’Hara continues: “While the UK economy appears to have avoided officially falling into recession, any growth seems a long way off. With high energy prices likely to continue, along with consumers feeling the pinch due to rising interest rates as well as a drop in discretionary spend, there are still stormy waters ahead. We advise directors to keep a close eye on their finances and seek professional help at the first signs of financial distress to avoid problems spiralling out of control.”

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Lawrence O’Hara of Begbies Traynor in Northern Ireland

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