Whilst most businesses are now able to operate without restriction and COVID-19 regulations have now mostly been relaxed to guidelines around the UK, the lasting financial effects of the pandemic are still a major concern for businesses of all sizes and sectors. Needless to say, many SMEs in the retail and hospitality sectors have been significantly affected over the last two years and financial management is vital to avoid insolvency.
Whilst businesses and customers alike now have more freedoms, SMEs now face new challenges in addition to those endured as during the numerous restrictions of the pandemic. Income is at its highest for three decades, interest rates have continued to rise, yet income for the majority of people is not in line with the increased cost of living. As a result, smaller businesses especially will be forced to rise their prices for consumers.
Post-pandemic challenges for SMEs
Whilst corporate insolvencies have been low since the start of the COVID-19 pandemic, this can be directly linked to measures put in place to help businesses survive during the pandemic and this support has now been stopped. As a result, company insolvency figures are expected to rise this year.
In the last quarter of 2021, we saw the largest number of CVLs (Creditor’s Voluntary Liquidations) for several decades. It’s no coincidence that these figures came after the furlough scheme was ended and the temporary suspension of liability around wrongful trading ceased. This shows that rather than waiting for creditors, many companies decided to wind up voluntarily as a result of insolvency or the likelihood of insolvency. As restrictions around creditor enforcements have now ended, it’s likely that creditors will increasingly be behind SMEs closing down.
In addition to the threat of creditors, small businesses will face the challenges of inflation and rising interest rates, along with increased import and supplier costs, and demands for higher wages from employees feeling the pinch. As a result of these financial pressures, and as few SMEs can afford to swallow such a hit, prices for consumers will have to rise, creating risk of alienation.
Financial management for SMEs in 2022
As circumstances mean that small businesses face many challenges to stay profitable and avoid mounting debts, effective financial management is absolutely essential. It’s important to make the right financial decisions in order to successfully steer a business through this difficult time, so here is our advice to help SMEs survive in 2022.
Do not be complacent with your company finances
Whilst it can be easy to be drawn in by the day to day running of a business, it’s vital that directors keep a close eye on their company finances at all times in order to be aware of any potential challenges before they arise.
Money comes into and goes out of a business frequently, so it’s essential to stay on top of income that is owed from customers or clients, as well as expenditures (money owed to creditors). If there is a risk of being unable to balance the books and pay creditors on time, then it’s important to be aware as early as possible in order to seek early advice from financial professionals.
Seek advice from an insolvency practitioner
If your business is unable to pay debts as they are due and is at risk of becoming insolvent, then it is important to seek independent advice from a licensed insolvency practitioner to find out more about what options are available. Closing the business is not necessarily the only option and insolvency practitioners may be able to help rescue the business.
As well as providing advice to businesses that are facing failure, IPs can also provide advice for solvent companies.
Engage with creditors
In some cases, opening a dialogue with creditors can make all the difference between having to close a business or continuing to trade. If there are concerns about paying debts as they are due, then discussions with creditors (including the HMRC, banks, landlords and suppliers) could result in more manageable payment terms, allowing you to pay debts over time. In contrast, failing to communicate with creditors leaves businesses at a much larger risk of facing legal enforcements and insolvency.
Financial advice for SMEs
If you are a director of a small enterprise that is facing insolvency, then it’s important to seek financial advice as early as possible. BEACON LIP are one of the leading licensed insolvency practitioners in the south of England.