Accountants have ‘vital’ role to play in mitigating energy crisis for SMEs

Accountants are uniquely positioned to help steer smaller businesses through the ongoing energy crisis and financial uncertainty, according to the Institute of Chartered Accountants (ICAEW).

“Our members have a wealth of expertise and experience, and they will play a vital role in translating the Government’s energy support package,” said Julie Corkish, the ICAEW’s head of practice.

Corkish suggested SMEs could benefit from advice around operational resilience, contingency planning, risk assessments, financial viability checks, cash flow management, and funding options.

“The pace and scale of economic and regulatory changes can be intimidating and a source of stress for businesses and their owners,” she added.

Energy Price Guarantee

Her comments come after the Prime Minister Liz Truss a two year ‘Energy Price Guarantee’, ensuring typical UK households will pay an average £2,500per year on their energy bills.

The new prime minister also pledged that businesses would receive similar support for six months, after which there would be “focused support” for vulnerable industries.

However, Martin McTague, national chair of the Federation of Small Businesses (FSB), warned that the announcement was “sparse on detail” and needed further clarification.

 “Small businesses’ instant reaction is that this is not enough information, yet, for them to plan,” he said. “The statement appears to leave a number of questions unanswered.”

Opportunity for growth

However, the situation presents an ideal opportunity for the business advisory community to reassess the services offered, according to Matt Banton, partner at Moore Kingston Smith.

“We’re likely to see less demand for certain services as SMEs cut costs in the short-term but a likely increase in M&A work in the medium-term as they seek to consolidate,” he said.

Banton also anticipates increased liaison with business energy specialists in the search for efficiencies in some areas of the market.

“We’ll continue to offer clients proactive and bespoke advice to support them through these difficult times ahead, with an increased emphasis on sustainability and reduction of business costs,” he said.

He also pointed out that SMEs should be encouraged to continue comparing energy prices and looking to lock in a fixed price contract, as well as making savings elsewhere.

“We should all be trying to limit the impact by being more energy efficient, including the use of LED lighting and solar panels where applicable, as well as educating our people,” he says.

Planning for the future

In addition, Banton argued that SMEs need to consider their current strategies through scenario planning to ensure there is enough flexibility and agility.

“With the potential significant impact on costs, in the short-term it’s about basic survival, but this is also likely to impact growth plans and future business decisions in the medium-term.”

The pressure felt by businesses has been heightened since the Bank of England (BoE) warned in its ‘ (August 2022) that slowing GDP growth was having a significant impact on companies.

“The UK is now projected to enter recession from the fourth quarter of this year,” according to the BoE report.

“Real household post-tax income is projected to fall sharply in 2022 and 2023, while consumption growth turns negative.”

Time running out

This means time is running out for businesses to build enough resilience to survive, according to Colin Haig, national head of restructuring at Azets UK.

“It is going to get very tough for businesses and some sectors, such as those dependent on consumer demand, will be disproportionately affected,” he warned.

Haig highlighted a so-called “financial defence toolkit” that could help firms review their costs, income, and business plans to reduce the risk of insolvency.

This includes paying off debt as the rates on business loans are rising, as well as imposing strict controls on both money owed and on purchases to maximise cash flow.

Scrutinising operation costs to ensure no money is being wasted unnecessarily is another priority cited by the toolkit, along with operating a cash flow projection that looks 13 weeks ahead.

Other issues to consider

Other suggestions include managing inventory carefully, monitoring the risk of supply chain problems, reviewing funding arrangements, and investing in existing customers.

“It is much cheaper to keep a customer than recruit a new one – and then focus on ensuring they remain a customer and build their spending,” he said.

However, businesses must remain optimistic, adds Haig.

While the next 18 months will be “extremely challenging” for many, there is still time to reduce risks and capitalise on any potential upturns, he argued.

“Recessions and downturns come and go but the majority of businesses will survive, and the majority of people will remain employed.

“There will be opportunities to acquire for prudent businesses who emerge from the current economic slump with a financial war chest intact.”