What directors need to know

The Federation of Small Businesses has issued a startling warning that up to half a million (500,000) SMEs were at risk of “going bust within weeks” without fresh additional government support.

FSB Chairman Martin McTague said that for UK small business owners and directors, the various rising costs have created a “ticking time bomb” that will be impossible to entirely avoid.

Mr McTague said: “We don’t have any problem with the way the chancellor dealt with consumer needs (in the recent cost of living package announced in Parliament last week) but there is still a massive problem with small businesses.

“They are facing something like twice the rate of inflation for their production prices and it’s a timebomb. They have got literally weeks left before they run out of cash and that will mean hundreds of thousands of businesses, and lots of people losing their jobs.”

He referenced the latest figures from the Office for National Statistics that indicated that approx. two million (40%) of the UK’s small businesses had less than three months’ worth of cash reserves left to support their day to day operations.  Of these, he estimated that 200,000 or 10% were already in serious trouble and another 300,000 “have only got weeks left.”

He said: “It is a very real possibility because they don’t have the cash reserves. They don’t have any way they can tackle this problem.”

The analysis ended with a plea for the chancellor to continue support otherwise the large amounts already spent risked being wasted. 

“He spent approximately £45 billion making sure those same businesses survived the Covid-19 crisis. Are we seriously expecting him now to abandon them just as they’ve managed to get through one crisis and effectively lose that money for the taxpayer?”

The threat facing small and medium sized companies, their customers and staff is real. 

Consumer price inflation reached 9% in April, which was the highest level since 1982. This was primarily driven by an historic jump in energy bills, record petrol prices, the rising cost of consumable goods and factory input prices increasing by 18.6% in the previous year. 

The Bank of England estimates that inflation will rise even higher to a peak of 10% later in 2022. 

Alongside supply chain issues and labour market shortages, it’s no wonder that businesses are increasingly worried about their future in the short and medium term as we reported earlier this week. 

Chris Horner, Insolvency Director with BusinessRescueExpert acknowledges the scale of the issues facing SMEs but warns against potentially exaggerating an already tough situation. 

He said: “After two years of artificially reduced corporate insolvencies thanks to bounce back loans and restrictions on winding up petitions and other creditor actions, it’s clear that their numbers will rise this year, especially in comparison. 

“Will they reach half a million? It’s doubtful as this would be more than 31 times the average number of pre-pandemic corporate insolvencies recorded in the 10 years up to the pandemic. 

“Which is not to say that a lot of companies are facing tough times now, through no real fault of their own. 

“They should do their best to concentrate on their own survival and wellbeing first and foremost and start with getting some professional advice on what they can do to make a material difference to their chances of remaining open for the rest of the year and beyond.”

In “the boy who cried wolf”, the villagers didn’t congratulate themselves that the wolf that eventually appeared was smaller than they thought it would be. 

Significant financial challenges to a business don’t become any less serious if they turn out to be slightly smaller than forecast. They are still existential threats, any one of which could put an otherwise good business out of business. 

Which is why a free consultation with a professional advisor is such a good opportunity. 

They will get a better understanding of your company’s situation, what problems it has and what challenges it is facing and let you know what options you have and what choices you need to make. 

Getting advice early often means that there is more hope and scope for improving and protecting a business, if that’s possible. 

But the most important, first step – getting in touch – is entirely down to you.