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Keeping SMEs Afloat During Times of Economic Uncertainty

Following the recent referendum on whether or not the UK should remain in the EU and the resulting shock of a Brexit vote, financial experts are warning that an increase in company insolvencies is inevitable.  The main reason for this is that consumers are likely to become more cautious leading to a fall in their discretionary spending.  Businesses that rely on this type of discretionary spending (mostly companies in the travel, house building and retail sectors) may find themselves in financial difficulties as a result of this and we’re likely to see a sharp rise on the number of businesses facing insolvency in the coming months. 

While there is still so much uncertainty about the timing of the UK;s exit from the European Union and the terms that will be negotiated with the EU, the UK’s future trading relationships are facing an unpredictable future.  This will mean that consumers are likely to put off making significant purchases until these issues have been resolved which could lead to a se4rious downturn in the UK economy. 

In times of economic downturn, the companies that are most at risk of insolvencies are the smaller businesses which don’t have the reserves and cash flow to absorb a fall in sales.  While there are several options available to SMEs when it comes to company rescue packages (such as restructuring and company voluntary arrangements – also known as CVAs), these rescue packages are more common among the bigger businesses.

Admittedly, so far, there has been no sign of a spending drop off as yet, but experts predict that any fall in spending will now show significant effects until the final quarter of this year.  Businesses that do come under increased financial pressure are expected to take a similar approach to those that managed to stay solvent during the financial crash of 2008.  This means that businesses are more likely to reduce staff overtime, freeze recruitment activity and persuade some staff to take on part time contracts or a reduced salary, rather than making mass redundancies.

Since the Brexit vote the sharp reduction in sterling means that we’re likely to see an increase in the cost of imports which may in turn lead to a reduction in consumer spending and a rise in inflation, despite the efforts of the Bank of England to reassure both consumers and businesses alike. 

Any businesses that are determined to weather the coming storms will need to plan carefully for the future.  This means keeping a constant eye on the ball so that cash flow problems can be identified and addressed immediately.  There are potential solutions available, including alternative finance and business recovery options.

Here at Access Credit Management, we’re committed to providing small businesses with the best advice and solutions when it comes to managing their cash flow and avoiding the types of debt that lead to insolvency.  Over the coming months, we’ll be keeping a close eye on the financial news so that we can keep our readers fully up to date with all the relevant information that they can use to keep their businesses afloat during the rocky times ahead.