Labour shortages force firms to rethink cashflowby
No milkshakes, chicken, confectionery, beer or petrol. Britain is counting the cost of chronic shortages of truck driving, shelf stacking and fruit picking staff. Accountants are warning it may get worse before it gets better
Covid restrictions and Brexit bureaucracy have combined to choke Britain’s supply of workers, leaving supermarket shelves empty, fruit and vegetables rotting unpicked in fields, and parents fretting over the availability of children’s toys ahead of Christmas.
Accounting experts say tough decisions will have to be taken by firms of all sizes to ride out the storm, maintain cashflow and ensure continuity.
“Cashflow in general for many businesses has been impacted for quite some time now and this current sledgehammer of Covid, the so-called ‘pingdemic’ and the difficulties bought forward by Brexit are going to put many in a precarious position,” said Rick Smith, managing director of business rescue firm Forbes Burton. “Sadly, tough expenditure decisions will need to be made and for some asset realisation may be needed as the appetite and overall confidence for lending is still not great,” Smith told AccountingWEB.
The acute workforce shortage has affected the agriculture, retail and construction sectors, along with bars, restaurants and cafes, food processing and even care homes.
Supply chain issues caused menu favourites to vanish from McDonald’s, Costa Coffee, and Nando’s, while Greggs ran out of its beloved chicken bakes and taps ran dry in many JD Wetherspoon pubs. Supermarket chains Tesco and Iceland, already unable to source a wide range of stock, warned Christmas could be painful for consumers.
Joel Berkowitz, founder of The London Toy Company, also delivered an early festive message to chill parents, as the global shipping crisis exacerbates the issues Britain faces.
“Toys this Christmas are going to be more expensive, and that's if they're even in stock,” Berkowitz said. “We are massively affected by the shortages. We have clients wanting to place orders now and we just can't deliver it. It's killing our business. It's a complete mess.”
A paucity of truck drivers has had the biggest impact, experts said, with an estimated shortfall of 100,000 operators triggering delays and depleted product lines. Tom Holder of the British Retail Consortium said the flow of food and other items from farms and factories to warehouses and distribution centres to shops had been significantly upended.
“This shortage means that there are some deliveries that simply aren't able to happen, or the cost of deliveries is going up," Holder said.
Large numbers of foreign workers have left British shores following Brexit, the haulage industry said, while tax legislation changes have cut the income of agency staff.
Lasting fallout from the Covid-19 pandemic has also aggravated the problem, with many drivers either having to self-isolate due to the rapid spread of the Delta variant or slowing the speed at which new hires can join.
“Even if we were allowed to recruit drivers from the EU, there’s a shortage of drivers there as well,” said Rod McKenzie, head of policy at the Road Haulage Association. “The only place that doesn’t have a significant shortage of drivers is Africa.”
“Finance directors need to preserve continuity as much as possible in the face of cashflow and supply chain issues,” said Nick Jackson, finance transformation leader at Oracle. “This means putting resilience at the centre of their financial strategy.”
One way of doing so is a reprisal of buffer reserves, Jackson told AccountingWEB. For example, having three months of cash reserves available, or establishing stock levels for business-critical items that can sustain operations through periods of disruption, he said.
“It also means planning more for the unpredictable by conducting quick impact analysis and multiple scenario planning,” said Jackson. “AI solutions and predictive analytics are invaluable to this, by enabling vast quantities of data to be analysed and interpreted in little time and automating repetitive tasks.”
Advances in technology allow finance directors to work far more effectively across the different departments involved in shoring up the supply chain, make intelligent decisions and response to the fast-changing situations, he said.
“When thinking of financial modelling for situations like this, it should be a case of going back to basics for many,” said Smith. “It's simple and can be summed up in three headers; income statements, balance sheets and cashflow. Companies who have this information immediately at hand can then scale accordingly.”
No short-term fix
Knowing where a business is financially is “half the battle”, Smith said. While most big corporations will have planned as best they can, further problems are inevitable when supply chains are so large and complex, he said.
"A vast majority of companies possibly need to go back and review suppliers and plan alternatives, thinking not only about cost, but effectiveness too,” he said. “Are the goods going to be delivered? Can suppliers promise goods for definitive times and dates? This is certainly a case where many would have had all their eggs in one basket and we can now see the impact of that coming.”
The situation may not return to normality until the second quarter of 2022, he warned, adding diversification and an openness to change should be high on agendas. “The foundation of business is demand, not being able to fulfil is a bitter pill to take as it impacts across the board and can be embarrassing,” Smith said. “A chicken shop running out of chicken sounds ridiculous because it is.”