Using publicly available data, Begbies Traynor’s latest Red Flag Alert shows a 24% increase in companies facing ‘critical’ levels of financial distress in the last quarter of 2011 compared to the final quarter of 2010.

The company says ( that there are many key sectors that now face ‘significant rises’ in critical financial distress.

Professional services – up by 61%

Travel and tourism – up by 56%

Property services – up by 30%

General retailing – up by 26%

Automotive – up by 14%.

Construction – up by 13%.

There has also been a 33% increase in the number of companies facing critical financial distress in the South East and a 19% increase in the London area. Both of which has ‘punctured’ the area’s resilience to any recession.

After a relatively soft period for business failure in 2011 compared with previous recessions, firms across key sectors now look set to face their toughest times so far as the UK economy looks likely to face increased business distress in the coming quarters.” Says Begbies Traynor.

The company also says that as the public sector cuts bite it is becoming evident that Scotland is showing evidence of financial distress.

Begbies Traynor is also expecting a ‘household name’ travel company to fold in the next quarter because of an ‘Olympic displacement’ effect impacting on domestic tourism.

It is also predicting ‘further deterioration’ in the retail sector with small and medium businesses most at risk.

The legal profession also came under the microscope as the double threat to businesses from clients cutting their legal services spending and the impact of the Legal Services Act on the bottom line. Legal businesses made up the large part of the 61% increase in professional businesses facing a critical financial position.

Executive chairman of Begbies Traynor Group, Ric Traynor, said “Trends evident in the Red Flag Alert demonstrate that we are likely to be approaching a crucial period for businesses large and small. Escalating levels of distress indicate we may be getting close to the bottom of the economic cycle, where so called ‘zombie” businesses, which are inherently insolvent, but have benefited from extensive support measures such as HMRC’s ‘Time to Pay’ scheme eventually fail.”

And Begbies Traynor partner, Julie Palmer, commented “The broad spread of distress reaches across just about every sector, but there are ‘hot spots’ such as the travel & tourism and professional services sectors.

Image by Betty Longbottom [CC-BY-SA-2.0], via Wikimedia Commons

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