‘Financial hygiene’ and cost control key to surviving the recession, advisors say

‘Financial hygiene’ and cost control key to surviving the recession, advisors say

Advisory firms must offer a “more supportive” and holistic approach to clients amid the economic downturn

‘Financial hygiene’ and cost control key to surviving the recession, advisors say

Businesses must keep costs under control to survive the impending recession, according to Claire Burden, partner, advisory consulting, at Eveyln Partners.

“It comes down to really boring financial hygiene,” she says.

“Keep costs low, make sure there are hurdles to incurring new expenses, and collect money as quickly as possible.”

Businesses have been facing pressures for many months, she says, but cash flow has become more of an issue with customers increasingly cautious about spending.

Her comments come as 42% of small businesses admit that avoiding insolvency is a top priority for the next six months, according to a YouGov survey commissioned by Meta.

Repaying pandemic-related debt, interest rate hikes, soaring inflation, energy price increases, and customers being more cautious are making life miserable for many businesses, according to Jon Stocker, general practice partner at Milsted Langdon.

Recruiting staff is another serious challenge with shortages in virtually every sector, adds Stocker.

“These [factors] are affecting the ability of SMEs to trade efficiently as they’re impacting the ability to fulfil orders,” he says. “The shortages are feeding the pressure on wage costs.”

Employees can benefit and play into an employer’s “perceived risk of losing staff”, says Stocker, resulting in companies having to increase wages to retain star performers.

Not all businesses will survive’

Such demands are coming at a time when businesses are already struggling to generate enough income to cover costs, according to Nicola Bridgeman, partner at Azets.

“The uncertainty around the political and economic future has also increased the costs of importing goods due to a weak pound and fluctuating exchanges rates,” she says. “Sadly, not all businesses will survive these tough times.”

Unfortunately, there doesn’t seem to be much positive news on the horizon, with inflation running at 11.1%, according to data from the Office for National Statistics.

This situation is unsustainable for thousands of businesses, according to David Bharier, head of research at the British Chambers of Commerce, who has criticised the Bank of England’s approach due to it failing to address the key drivers of inflation.

“Confidence is falling fast as many SMEs find it almost impossible to absorb or pass on rising costs,” he said in a statement. “The UK economy otherwise faces a lethal combination of recession and runaway inflation.”

According to data from the Insolvency Service, 5,595 company insolvencies were registered in third quarter of this year – 40% higher than the same period last year.

Accountancy firms have a significant role to play in helping those still in business from suffering the same fate, according to Lara Brennan, head of SME at Mazars.

“We’re spending a lot of time helping businesses review their finance function, as well as supporting them with business planning, cost reduction, and cash flow forecasting,” she said.

Accountants must move away from supplying just traditional compliance service, she argues, and put more focus on providing holistic support.

“You’ve got to be able to assess different scenarios and planning,” she added. “Businesses should have a plan for the next three years minimum, otherwise they’re very short-sighted.”

Helping businesses build resilience

Jason Kings, a director at Ascendis, believes forward-thinking businesses may emerge from the recession in better shape.

“Some of our clients have actually seen next year as an opportunity to secure more market share due to competition easing,” says Kings.

Helping clients secure various forms of finance is enabling them to “survive and thrive” while rivals continue to struggle, he says.

“With the prospect of a recession upon us, [businesses] can use the cash to ramp up turnover, while keeping a keen eye on margins through budgets, and spending through cashflow forecasting,” he added.

Accountants must also help clients identify areas of wastage or poor performing parts of the business to ensure they’re maximising possible returns, adds Milsted Langdon’s Stocker.

“They should also be helping clients make sure that any debts that start to become late are acted upon before there is a collection problem,” he says.

Many businesses are making sure they bill on time and this is crucial as high inflation goes hand-in-hand with higher controls needed, says Eveyln Partners’ Burden.

“It’s a change of mindset from being much more free with the financials and investing all over the place to being much more targeted and having a controlled environment,” she says.

However, it’s important accountancy firms acknowledge what business owners are going through and provide emotional assistance as well as financial advice.

“I’d like to see more understanding that clients are stressed, burned out and fire-fighting” she adds.

“Everything is very difficult so it’s a case of being more supportive.”

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