Stay on your toes with cash flow and future finance needs in order to manage Brexit uncertainty
Michelle Elliot, Director at Leonard Curtis Business Solutions Group Glasgow, providers ofthe Lifecycle network, looks at what SMEs can do to help make themselves more Brexit-proof
As is the case with many business situations, the eventual outcome of Brexit, deal or no deal, is too difficult to predict. However, what is clear is that the uncertainty surrounding the issue is impacting consumer confidence and business growth. This is particularly true in Scotland where the eventual outcome of Brexit may also lead to a second independence referendum.
As at March 2018, there were around 343,535 SMEs operating in Scotland, providing an estimated 1.2 million jobs. SMEs accounted for 99.3% of all private sector businesses, 54.9% of private sector employment.
The Scottish Fiscal Commission (SFC) forecast economic growth of 1.2% in 2019 and 1% per annum between 2020 and 2021. However, this growth is predicated on there being a smooth transition out of Europe. A disorderly Brexit could prompt a recession in the UK.
A no deal Brexit could have an immediate adverse impact on business, particularly for SMEs who don’t have adequate contingency measures. Disruption has been widely predicted across many channels, from practical supply chain and logistics to migration, trading conditions, value of the pound and market confidence. Sectors in Scotland expected to be most vulnerable include financial services, manufacturing, food and drink, hospitality and leisure and agricultural and fishing - in short, some of the most important industries in the country.
Key actions for SMEs
Whilst it is impossible to prepare for all eventualities, how businesses ride out the economic uncertainty arising from Brexit will determine their success in the coming months and years. We have come up with some key tips to share for navigating the landscape ahead.
Good quality management information
Financial records are the backbone for all businesses. Good financial records are essential to understand whether the current business model is working and also to make decisions on future growth strategy. This is particularly relevant for Brexit where you need to be able to understand which areas of business will be most impacted.
Cash is king
Positive cash flow in a business is necessary to fund trading and growth. Prepare weekly cash flow forecasts to show what payments need to be made, and where the money is coming from. This will also assist in identifying any future funding requirements.
Manage customer payments
It’s good financial discipline to monitor customer payments, to ensure they are in line with invoicing terms and take a pro-active approach in chasing customers who pay late. Late payments continue to be a critically important issue for SMEs as smaller businesses are typically more dependent on cash flow than their larger counterparts, with smaller cash reserves and fewer options to fall back on.
Open dialogue with creditors
If struggling to pay liabilities of the business, consider engaging with creditors to agree a payment plan. Struggling businesses that we meet tend to have HMRC arrears. Opening dialogue with HMRC and seeking to agree a Time To Pay (TTP) Arrangement can reduce serious pressure on business owners. We have specialists in this field who can provide assistance.
Seek external funding
Having a funding facility in place that's available when finances get tight or growth opportunities arise is a good contingency plan. A fall in the pound post Brexit could result in a rise in inflation and the Bank of England increasing interest rates, making additional borrowing more expensive. So now is the time to consider whether funding is required. We specialise in finding the right solutions through Reach Commercial Finance.
Get advice when necessary
Whether it’s Brexit-led or other issues affecting business profitability and long-term sustainability, do not ignore the warning signs. Early intervention provides more options. We work across Scotland with SMEs experiencing financial difficulties to provide practical, straightforward advice. The key message to act early, know what the trigger would be for seeking advice - Brexit-related or otherwise - and don’t be afraid to seek advice from an expert.