SMEs in lockdown trying to look up

2020 has brought SMEs their biggest ever challenge to date. The coronavirus pandemic threatens their existence as economies adjust to the financial turmoil started by this invisible enemy.

SMEs in lockdown trying to look up

2020 has brought SMEs their biggest ever challenge to date. The coronavirus pandemic threatens their existence as economies adjust to the financial turmoil started by this invisible enemy.  Across the board there have been problems with government funding and thousands of small businesses say they are firefighting immediate concerns such as cashflow pressures and resuming operations safely ahead of lockdown lift.  Latest research from ACCA (the Association of Chartered Certified Accountants) and The Corporate Finance Network (CFN) highlights the growing number of SMEs seeking reassurance on how to manage their cashflow as the UK comes out of the Covid-19 lockdown.  It is apparent that small businesses are seeing their survival instincts kick-in amid fears over their ability to access cash required to operate post-lockdown.  ACCA and CFN’s Weekly SME Health Tracker surveyed accountancy practitioners advising 1,800 small businesses. They revealed clients’ three main fears were the ability to manage cashflow pressures, implementing the practicalities of social distancing guidelines at work, and the late payment of invoices.

Key short-term findings from this week’s tracker showed that 23% of SMEs are unable to access cash to last another two weeks of lockdown; 14% of SMEs won’t have access cash to last four weeks of lockdown; 5% intend to dissolve, up from 4% on last week’s findings

Further concerns were raised by companies on their ability to access cash from the government’s financial support schemes. Consequently, the strain on firms continues: 89% of practitioners report SME clients are feeling more stressed, 78% have worse mental health and a worrying 11% are feeling suicidal.

The sentiment among SMEs is one of extreme cautiousness and uncertainty.  Long-term decisions are increasingly being put on the backburner with 60% of companies revealing they are deferring tax liabilities. However, one encouraging sign saw 64% believe these can be met within six months.  

It appears SMEs are cautious about taking on more debt and ACCA members have revealed their frustration with the loan schemes, and that access to cash is not happening quickly enough meaning cashflow is weak. They are also finding complications with financial support schemes such as the turning away of directors from the furlough scheme because they receive annual PAYE, despite these payments being eligible. Issues such as these are compounding SMEs’ concerns in the immediate term around the access to cash, they had assumed would be available. 

Additionally, CFN reports that the release of lockdown will be the riskiest time for most owner-managed businesses as they are feeling the pinch from all sides in that they are unable to generate cashflow quickly due to their customers’ lack of credit; are incurring additional costs in their own premises due to social distancing or PPE requirements and they are being chased for old debts themselves, putting their relationships with suppliers under pressure. It is no wonder that many business owners are choosing to hunker down for a while longer rather than stick their head up above the parapet just yet.

It’s important to acknowledge the wider and vital role accountants continue to have in helping small business best navigate life changing choices during this pandemic. As the weeks pass, the impact on lives is becoming clearer; as more small business owners decide to liquidate, we’re also seeing a worsening picture of mental health in the small business community. Having someone to speak to at this time is vital, and we know some hard conversations are being had, and will continue for months to come.

The pressures are building up and this is reflected in what practitioners are hearing from their clients. While the extension to the furlough scheme is to be welcomed, it would be easier for business owners if the flexibility could be brought in before the planned date of 1st August. As businesses make plans to reopen, they need the ability to bring employees back part-time now, and not have to make that difficult decision to make some employees redundant, which is a very stressful decision to make and enact.

The key role for accountants has always been to help organisations and especially SMEs to be sustainable, in the past this mostly meant financially sustainable.  And it’s well known that sustainable organisations are the lifeblood of any successful society. They are good corporate citizens, generating and sustaining value beyond financial profit, this is their purpose.  In these testing times SMEs will need to forward plan and look at business contingency plans with their accountant and take a pragmatic and realistic approach to build a better future.

Clare Bennison
Clare Bennison

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