Insolvency research by restructuring trade body R3 has revealed that more than half of all technology and IT companies in Scotland are at higher risk than average of going under over the next 12 months.

In June 2018, 50.1% of firms were in the negative band, equal to 5,600 companies, this figure represents a dramatic increase from 33.5% a year ago.

For the UK overall, 47.9% of companies in the tech sector fell into the negative band in June, up from 33.6% in 2017. Nearly 79,000 out of the 232,000 businesses registered in Scotland fell into the negative band in June, meaning 34% of firms were judged to be at greater than usual risk of insolvency. That figure compared favourably with the 40.9% figure for the UK as a whole.

No Need for Panic in Silicon Glen

Tim Cooper, Chair of R3 in Scotland and a Partner at Addleshaw Goddard in Edinburgh, said: “Although R3’s research indicates that a high proportion of Scottish tech firms are at greater than normal risk, there’s no need for panic in the Silicon Glen.”

“For one thing, the technology and IT sector across the whole of the UK has the second-highest percentage of companies in the negative band out of all the sectors monitored by R3, behind professional services, so this is certainly not an issue confined to Scottish companies.”

“Another factor to keep in mind is that it is young businesses which are at greatest risk of insolvency within their first few years, and the tech sector is renowned for its number of start-ups – not all new ideas succeed, while within the sector there is a strong ethos of trying something new if a previous venture doesn’t work out.”

“Scotland’s tech scene is supported by our network of world-class universities, providing a ready supply of qualified and talented graduates, and our strength in financial services, meaning that entrepreneurs need not uproot themselves in order to access funding.”

“In order for a tech company to survive and thrive, it needs more than just a great idea for an app or a gadget – founders need access to skills in areas such as people management, strategy, and credit controls.”

“Luckily, if their skills lie in coding, not accounting, they can turn to professional advisors to plug gaps in their knowledge and ensure their businesses are on a firm footing for the future. The sooner that any company in any sector seeks expert advice when it hits a bump in the road, the better its chances of survival, and it never hurts to have an objective outside view of what happens within a business.”