The proportion of Scottish companies at elevated risk of insolvency fell slightly between October and November, by 1.3% – the first monthly fall in nearly two years, according to research by insolvency and restructuring trade body R3.

Just over one in three (35%) companies in Scotland is at higher than usual risk of insolvency in the next 12 months – a figure that has stayed relatively stable since August, following sharp rises in the first months of 2018.

The percentage of companies at greater than normal risk of insolvency was, however, much higher than this time last year (November 2017: 25%). This rate of growth is in line with the rise in the proportion of all UK companies at higher than normal risk, which grew from 31% in November 2017 to 42% in the latest set of figures.

Compared to Wales, Northern Ireland, and the nine regions in England, Scotland’s business sector has the lowest proportion of companies at elevated risk of insolvency. Northern Ireland comes in second, with 36%, while the South East of England has the highest percentage of businesses judged to be at greater than usual risk, at 47%.

Looking at individual industries, Scotland’s hotel and pub sectors both saw a decrease in the proportion of companies at higher than usual risk between October and November, falling by 2.7% and 3% to reach 36% and 30% respectively. The all-important retail sector, meanwhile, saw a month-on-month fall of 0.8% in the percentage of companies at elevated risk, meaning that 38% of Scottish retailers are currently judged to be at higher than usual risk of insolvency. This is the same proportion as for the UK overall.

Tim Cooper, Chair of R3 in Scotland and a partner at Addleshaw Goddard in Edinburgh, said  “It’s good news that the proportion of Scottish companies at higher than normal risk of insolvency has fallen month on month. There is, though, no room for complacency, with wider uncertainty taking its toll on business and consumer confidence. For retailers and the hospitality trade, hopes will be pinned on the ‘golden quarter’ – the pre-festive season period where consumers loosen the purse strings, and are keen to banish the winter blues with a meal in a restaurant, or a night out.”

“For retailers, the composition of the golden quarter is evolving all the time: the US tradition of Black Friday has made its way across the Atlantic, with Cyber Monday hot on its heels. These heavily promoted events are pulling forward pre-Christmas sales, and encouraging buyers to look out for bargains. This causes significant pressure on margins, and has a dampening effect on the appeal of the traditional post-Christmas sales – if you can nab a bargain in late November, why wait until January?”

“The hospitality sector, meanwhile, is being affected by staff shortages, and is still absorbing the consequences of rises in the Minimum and Living Wages earlier this year. Imported foodstuffs have become more expensive, while consumer expectations are ever-growing – restaurants, cafes and bars with tired décor and less photogenic dishes are finding it harder to appeal to social media devotees. Finding cash for a refit can be a tall order for a bar or eatery which has seen its margins squeezed in recent months.”

“Right now, many companies will have their heads down preparing for a hoped-for festive rush. But tunnel vision is not helpful, especially if it means losing sight of possible cashflow issues. Anyone who is concerned should seek expert advice from a reputable source as soon as problems arise – and preferably beforehand, too.”

The figures are from R3’s latest insolvency risk tracker. The tracker is compiled using Bureau van Dijk’s ‘Fame’ database and measures companies’ balances sheets, director track records and other information to work out their likelihood of survival over the next 12 months.