Scotland has the lowest proportion of firms at greater than average risk of insolvency of anywhere in the UK, although the percentage of Scottish companies at elevated risk has risen sharply over the last six months, according to research from insolvency and restructuring trade body R3.

In the April figures, Scotland has the lowest overall rate of firms at higher than normal risk of insolvency, at one in three (32.5%), against a UK proportion of two in five (39.1%).

However, this represents a steep climb in risk levels compared to six months ago, in October 2017, when under a quarter of Scottish firms (23.8%) fell into the elevated risk category (UK: 29.8%).

Tim Cooper, Chair of R3 in Scotland and a partner at Addleshaw Goddard in Edinburgh, said “The rise in the risk profile of Scottish companies matches what R3’s Scottish members have been seeing in their work with distressed businesses over the past few months, with growing demand for advisory and restructuring support. While it is good news for the Scottish economy that our businesses have the lowest risk profile of anywhere in the UK, it’s still concerning to see the proportion of firms at greater than usual risk rise from under a quarter to one in three in just six months. It underlines that no business owner can afford to be complacent.

“Fuel prices have ticked upward since October, inflation has been rising, consumer confidence has been falling, business confidence has been dented by a series of high-profile insolvencies – there are many reasons why more firms are now at risk. Rises in the National Minimum and Living Wage, and in the minimum contribution to workplace pensions came into effect in April, which will soon start to have an impact, as many consumers will see their take-home pay fall, while businesses’ payroll costs rise. The message we want to get across to firms is that seeking professional advice from a reputable and certified provider can be a huge help when navigating choppy waters – and the sooner, the better. Don’t delay if you’re unsure what to do – your firm’s survival could depend on it.”

Looking at specific industry sectors, this pattern persists. In October last year, Scotland had a lower level of firms at elevated risk in 9 of the 11 industry sectors monitored by R3; in the latest research, Scottish firms beat the rest of the UK in 8 out of 11 sectors, as well as in overall terms.

In the hospitality sector, Scotland’s pubs once again boasted the lowest level of companies at higher than normal risk, at 26.5%. This figure is over 7 percentage points higher than six months ago (October 2017: 19.3%), having risen at a slightly slower rate than the pub sector in the UK overall, which went from 23.5% to 31.1% over the same period.

Restaurants fell back slightly in the regional rankings between October and April, from 3rd lowest (21.8%) to 4th lowest (29.9%), while Scotland’s hotels climbed the risk rankings, from 5th highest level of firms at elevated risk in October (23.2%) to 3rd highest in April (33.9%).

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.