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Warnings sound for small firms as recession looms


Several key business organisations are sounding alarm bells, indicating that the recession is about to hit small accountancy practices where it hurts.

6th Jun 2022
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The accountancy sector has been remarkably resilient in the face of a series of disasters that have blighted the country (and the world) over the past couple of years.

While the Covid pandemic was hardly fun, whenever I have had chats with friends about their firms’ financial performance, the trend has almost always been positive. Threats of recession, the temporary closure and slow recovery of some industry sectors, and general economic downturns have passed us by.

Indeed, if you hear an accountant complaining is more likely to be about the difficulty in getting enough staff to do all of the work that is flooding in.

While it may not be ideal, that is a nice problem to have when compared to those who have closed their businesses for ever and may well have to sell their houses to pay off the debts.

Confidence tanking

Reports from several diverse sources suggest that some of us may need to tighten our belts before too long.

Both the Institute of Directors and the Confederation of British Industry (CBI) are suggesting that business confidence is tanking. The level to which the economy is sinking is made even more starkly clear by two other recent pronouncements.

Begbies Traynor set off alarm bells with their warnings about a significant rise in impending insolvencies. These were based on the number of companies finding themselves in court after failing to pay debts. Without intending to cast aspersions on the business recovery and insolvency industry, one might reasonably have wondered whether there was a touch of wish fulfilment, not to mention marketing strategy attached to that messaging.

Risk of failing

However, earlier this week, the Federation of Small Businesses (FSB) came to a similar conclusion, declaring that their client base could be significantly diminished before the summer is out.

Terrifyingly, the FSB has estimated that around 10% of the UK’s 5,000,000 small businesses are currently at risk of failing within weeks, unless there is a U-turn on government policy (perish the thought).

FSB chairman Martin McTague was keen to praise Rishi Sunak for his most recent bailout package for individuals, divided between payments to all and targeted amounts for the poorest in society.

However, as McTague pointed out on Radio 4’s Today programme: “There is still a massive problem with small businesses. They are facing something like twice the rate of inflation for their production prices, and it’s a ticking timebomb.”

To ram home the point, he quoted various Office for National Statistics figures indicating that 200,000 small businesses were in “serious trouble”, while 300,000 more “have only got weeks left”.

This sounds alarming and one has to hope that those at the FSB are misreading or misinterpreting the runes, not to mention the figures.

Small businesses

Let’s assume for a moment that the scare stories represent reality. While it might not mean the end for many accountancy practices, the vast majority of readers work in firms that rely on the small business sector for not only bread-and-butter work but the jam on top as well.

Therefore, if 10% of small businesses go under, some of our ilk could be in serious trouble.

In the short term, a significant amount in terms of unpaid fees might be put into the hands of administrators or liquidators. The glass-half-full brigade will look forward to receiving a few pennies in the pound in a year or two, their glass-half-empty colleagues will know that in reality those fees can be written off.

Looking further ahead, it gets worse since much of the repeat business that underpins our profit and loss accounts and partnership shares will also have gone for a Burton.

Seeking solutions

What can we do to remedy the situation? Probably very little. As a bare minimum, it might be a good idea to get credit control under control and also think about the opportunities that might replace all of that lost business.

Alternatively, we can stick our heads in the sand and pray either that it all goes away or maybe even, after getting a taste for giving away the crown jewels in what are fast becoming monthly mini-Budgets, that nice Mr Sunak comes up trumps again.

Such an approach is hardly ideal but it may save a few sleepless nights.

Replies (5)

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By ireallyshouldknowthisbut
06th Jun 2022 10:17

I have always done well out of downturns.

Clients need more support, and there is a lot of churn of new nano businesses starting up as people lose jobs and start something.

That and some businesses looking to ditch expensive mid-range firms and come to mid priced outfits without big overheads.

So its win, win, win for us commercially.

Thanks (2)
By Hugo Fair
06th Jun 2022 12:28

The most worrying aspect of this article?

The idea that accountants need to be told that (to remedy the situation) ... "it might be a good idea to get credit control under control and also think about the opportunities that might replace all of that lost business."

I guess some people (but not the brighter ones) forget about the basics when the money's just rolling in, but this is back to basics at a level that even Del Boy did intuitively!

Thanks (3)
paddle steamer
06th Jun 2022 16:28

Is this real downturn or is it just catch up time re normal rates of attrition; those that ought to have failed in 2021 merely staggering on to now fail in 2022?

The reason I make this point is a slight scepticism, our business barometer tends to be enquiries for premises, whilst they have not been booming there has also not been a drought, as of last week we only had two offices vacant, amounting to circa 4% of our portfolio by ERV, this week we are down to one empty office representing 2.9% and if it does not let we will likely move into it ourselves come December.

There may be a downturn but if there is it is a pretty friendly one(this is not yet 2008-2010)

Thanks (1)
07th Jun 2022 09:53

AND STILL NO ONE IS TALKING ABOUT MTD ITSA !!!!!!!!! so we have had Brexit, COVID, WAR etc. and still we have a government and HM Treasury who want to lay EVEN MORE COSTS on struggling small businesses. AND they have the gall to tell us they are the party which supports small businesses - my A*SE !!! And small accountancy businesses like mine are retiring not because of the loss of clients but rather because HMRC want us to do 5 times the work and pay their accounting software friends a bucketful of charges. Good Luck is all I can say !!!!!

Thanks (5)
Mark Lee headshot 2023
By Mark Lee
17th Jun 2022 13:56

Is the implicit assumption reasonable here? How many of the 10% businesses that are predicted to fail are looked after by an accountant and how many have struggled without one? Indeed this might even be an indicator of their inability to survive when they encounter a recession.

I don't recall the stats but believe that only a minority of smaller businesses are served by a qualified accountant. Somehow I suspect that the predicted 10% may be skewed towards those without access to advice.

Thanks (0)