What do directors need to know?

Summer has finally arrived and along with most of us, many businesses are starting to genuinely feel the heat.

The manufacturing sector is especially worried about the coming few months and with good reason. 

Make UK, the trade body for manufacturers, have released research that shows how members are planning to weather the immediate storm amid a worsening economic outlook, with costs rising and opportunities stalling. 

They found that more than two thirds of manufacturers (67.8%) said that rising energy costs were causing “catastrophic or major disruption” to their daily operations. 

Another 71.9% said that increased raw material costs would have the biggest damaging impact on their working patterns while 66.8% pointed toward rising transportation costs having a similar effect. 

Stephen Phipson, chief executive of Make UK said: “Rapidly rising input costs, ballooning energy bills and in some cases inflation busting pay settlements have hit margins and frozen investment plans. 

“There is now a strong case for Government action to help UK manufacturers weather this immediate storm and incentives investment for long-term growth.

“Clearly some of the factors impacting companies are global and cannot be contained by the UK government alone. 

“However, just as it is quite rightly taking measures to protect the least well off, given the rate at which companies are burning through their balance sheets just to survive, it must take immediate measures to help shield companies from the worst impact of escalating costs and help protect jobs. 

“The government moved swiftly to implement the furlough scheme two years ago; it would be a wasted investment if the jobs saved then are lost now.”

A government spokesperson said: “We continue to support our manufacturers, including through the tax system with the Annual Investment Allowance and the super-deduction – the biggest business tax cut in modern British history.

“This comes on top of an increase to the Employment Allowance, a cut in fuel duty and an extension to schemes for energy-intensive industries to help manufacturers with higher energy bills.”

“A hat trick of hurt” is heading for SMEs this summer

The research further underscores the country-wide scenario that the rising fuel costs, higher wages and the surging price of imports and raw materials are forcing hundreds and thousands of small and medium sized businesses to change their behaviour.

While manufacturers are spending more on securing basic raw materials and components needed to supply their customers now, it makes it harder for them to look at the medium term with any confidence. 

Make UK’s senior economist Fhaheen Khan said: “Our recent reports have found that investment cash and expansion plans are being shelved because more funds are tied up securing supplies.”

This follows the CBI’s sobering research that confirms the current slump in private sector activity with consumer services showing a 41% fall in activity – the largest by any sector since February 2021. 

Alpesh Paleja, lead economist at the CBI, said: “With the post-pandemic recovery severely challenged by continually strong cost pressures, private sector activity is grinding to a halt. 

“Businesses are ordering earlier because unless they do, they won’t have anything to sell in six months’ time.”

This will effectively tie up cash for half the year that would otherwise be used to invest and recruit. 

Martin McTague, chair of the Federation of Small Businesses, pointed out that while consumers had received help during the cost of living crisis, businesses had not.

He said: “This genuinely feels like a scary moment for many thousands of small businesses. 

“The cost of a litre of petrol or diesel is just one very obvious example of the price pressures small businesses are experiencing. But it’s not just fuel – it’s energy, raw materials, insurance, staffing costs, rents, components – it’s across the board.”

This is against a background of inflation rising to its highest level since January 2009 and expected to peak even higher at 11% in October, according to the Bank of England.

As well as dealing with the heat, the Summer is also an opportunity to take advantage of the downtime it brings and contemplate what the next move could be for your business. 

And one of the best strategies to do this is to take advantage of some free professional advice. 

We offer a free initial consultation to any business owner or director that will give them a better idea of what options they have to choose from, right now, to help their business recalibrate and restructure so that when the weather starts to cool and kids start to go back to schools, they will be in a stronger position than they are today. 

All they have to do is get in touch first.