The lockdowns of 2020 and 2021 now seem like distant memories.  Whilst 2022 has certainly brought a sense of normality to the UK economy following the disruption caused by the global pandemic, it is also bringing the biggest challenges in a generation particularly for small and medium sized firms.

There are a number of significant issues currently causing headaches for UK businesses.

• Inflation rates reaching a 40 year high of 9.9%
• Interest rates at the highest rate in fourteen years with repayments and interest charges now applicable for all Bounce Back Loans
• Energy prices at an all-time high and expected to increase
• Extreme exchange rate fluctuations
• Supply chain problems; fallout from the global pandemic and the war in Ukraine
• Consumer confidence and disposable income both falling.

There is no doubt that we are currently looking at a negative outlook with these (and other) issues pushing the UK economy to the edge of recession.  However are we set for a winter of discontent or is it to be viewed as an opportunity to ensure that businesses not only survive, both in the short and long term, but indeed prosper in a new economy?

Unfortunately, there will be businesses of varying shapes and sizes which will not be able to survive. Certainly those in the hospitality industry have been dealt a further bad hand with no  VAT or business rates support being provided in the “mini” budget in September 2022. This combined with vastly increasing costs and the anticipated slowdown in consumer spending could be disastrous.

Take early advice

As an Insolvency Practitioner it is often considered that we thrive in the doom and gloom of recession, however, whenever I am asked my mantra is always “the sooner advice is sought, the more options there are available”. We will work hard to keep the doors open rather than to close a business down.

Without proper planning and advice, more businesses will be at risk of shutting down their operations. Accountants and Insolvency Practitioners can work together to ensure that businesses become more efficient and survive with a view to thriving.

Cash flow planning

The biggest issue often facing small and medium sized businesses is managing cash flow; there are however options available to assist in this and your accountant should be able to help.  It is imperative that income and expenditure are closely monitored and forecasts prepared so that potential difficulties can be identified as early as possible and further advice sought.

Government loans and support

Businesses who have obtained Bounce Back Loans can request extensions to the repayments and I would recommend speaking with your bank in the first instance.

Similarly HM Revenue & Customs are often open to “Time to Pay agreements” which provide a relief to short to medium term cash flows.

In August 2022, the Government announced a two year extension to the Recovery Loan Scheme, which supports access to finance for UK businesses impacted by the Covid pandemic. If you have not already applied for a loan, this could be worth considering.

The Commercial Rent (Coronavirus) Bill 2021-22 ring-fences commercial rent debts built up as a result of mandated business closures during the COVID-19 pandemic. It introduces a binding arbitration process and the arbitrator will make an award which may write off all or part of the debt; allow time to pay all or part of the debt; and may reduce the interest on the debt that otherwise would have been payable.  The intention is that rent debt accrued as a result of the COVID-19 pandemic should not force otherwise viable businesses (landlord or tenant) to cease operating. The protection only applies to the specific periods of time when the business was mandated to close.

At a local level grants are available for the use of green energy including wood waste heaters and electric vehicle charging points.

Supply chain

In terms of the supply chain issues, previous operational processes may have been disrupted, but this should not necessarily mean an end to the businesses.  In fact, if acted upon, disruption can have a positive effect and can lead to a fresh approach (perhaps obviating the dependence on certain third parties) which results in greater efficiencies and improved revenue streams.  Companies may take the opportunity to become more flexible and resilient, increasing investment in existing and new technology and entering new collaborations.

Planning for the future

Whilst there may not always be a resolution, it is always recommended that Directors undertake an honest review of their business’s current and future cash flow, as well as the overall financial position of the business.  This is particularly important in the current economic environment.  I would urge all businesses to conduct a thorough cash flow forecast for their business, considering various trading scenarios in order to identify how they will navigate their business through the spiralling economic issues.

If the outlook still looks bleak

We strongly advise you to take professional advice as soon as you realise there could be a serious problem, but if you feel the business simply is not viable don’t just close the door and leave.  You are likely to still have obligations which must be fulfilled.

If you have a limited company you will have duties as a director which need to be taken into consideration.

But whether you are trading as a limited company or you are self-employed, there may still be options for you to continue or to retrieve value from the failed business