BUSINESSES in Scotland are outperforming the UK average on profitability.

The findings were made in a study of 220,000 firms by accountancy and business advisory firm BDO.

Scottish businesses reported average profit margins of 7.5% – which is above the UK’s average of 6.7% and ranked second only to businesses in London that reported average profit margins of 8.1%.

Scotland’s strong financial services industry and whisky distillers were highlighted as key factors in the strong performance.

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Andrew McNamara, business services and outsourcing partner at BDO, said: “It’s encouraging to see Scottish businesses reporting above average profit margins.

“The country is particularly strong in some of the UK’s best-performing industries and is well-positioned to weather and rebound from the disruption of Covid-19.

“The heritage food and drink industry is one of the UK’s biggest goods export success stories, while financial services is the UK’s biggest services export.

“Scotland benefits heavily from the success of both.

“As businesses look ahead to their post-pandemic recovery and growth, they should be considering how to maximise profitability.

“Driving down costs like rent and utilities, increasing sales from existing customers and minimising the holding of unnecessary stock are steps that should be automatic.

“Beyond that, incentivising sales staff on the basis of margin rather than volume and an increased focus on improving governance can have an impact on profitability in the longer term.”

Scotland’s financial services sector, which employs 87,000 people, has an average profit margin of 13.6%.

The research pointed to the “numerous banks and other major financial services businesses including asset managers and insurers” based in Edinburgh.

Almost a quarter (24%) of the UK’s life insurance employees work in Scotland, along with 13% of those employed in banking.

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Meanwhile, Scotland’s economy is also being boosted by the profitability of whisky distillers.

BDO’s research shows that businesses in the flagship drinks manufacturing industry reported profit margins that average 20% – one of the highest levels of profitability seen in any industry classed as regional.

The Scotch whisky industry provides £5.5 billion in Gross Value Added to the UK economy and accounts for 1.4% of all UK goods exports.

The introduction of tariffs in 2019 led to exports of whisky to the US falling by 35% until they were scrapped in early 2021.