Azets UK CEO: ‘degree of hysteria’ around SME health outlook

Reports of recessionary pressures spelling a gloomy outlook for UK SMEs are partly the product of hysteria and misinterpreted statistics, according to Paul Clifford, Midlands regional CEO at Azets.

“There are plenty of risks in the market for SMEs, but SMEs can react and pivot quickly, which is why recessions traditionally don’t hit them as hard as larger businesses,” Clifford says.

“I’m quite bullish about 2023, especially in the SME market.”

According to the UK government’s Insolvency Service, corporate insolvencies in December 2022 were up 31.9% year-on-year, and 75.5% higher than in December 2019.

New research from Fiverr also paints a damning picture, showing that nearly 1/5 of UK start-ups and small businesses have lost over £100,000 since the start of the economic downturn.

Similarly concerning for consumers and businesses alike is the rate of inflation in the UK, which escalated rapidly in 2022 and closed out the year at 10.5%.

But Clifford calls for a “more balanced view”, arguing that there is naturally a “certain degree of hysteria around this”.

“Inflation and interest rates increasing has obviously put pressure on consumer spending, but I think the companies that are strong and well set up to come out of the pandemic are in a good position.

“This is my third or fourth recession, and one thing I’ve learned is that poor businesses don’t make it through.”

Clifford also argues that the pandemic may have distorted insolvency figures, with many businesses’ inevitable liquidation being delayed due to the “lifeline” of government support measures.

“In a strange way, Covid did some good for certain businesses. There were suddenly lots of businesses that would’ve closed down within the normal course of trading, and suddenly they had a lifeline of free cash.

“The reality is we’re always going to see insolvencies because there’s always poor businesses. So I think it is slightly distorted by Covid.”

Growth hits the buffers

But signs of a toughening small business climate were supported by the latest edition of the ACCA’s SME Tracker, which found that under 1/5 (17%) of SMEs plan for growth in 2023.

The research also found that just 1% of businesses in the East of England plan on hiring in 2023.

“SMEs have been feeling a bit unloved since the Autumn Statement, with various different freezes, HMRC service levels deteriorating, energy costs and things like that piling up,” says Glenn Collins, head of technical and strategic engagement at ACCA UK.

“So I’m not surprised by those results because it’s part of that growing sentiment of waiting to see how things turn out.”

Responding to Clifford’s scepticism, Collins goes on to concur that the underlying economic data “probably is slightly more optimistic”, but argues that the current level of trepidation, even among stable SMEs, is understandable.

“You have to pay attention to the feelings and perceptions of others and think, ‘yes my business is still profitable, but should I be taking an ill-informed gamble at the moment?’

“I understand the points that can be made around the underlying data, but all that news and information out there is making people lack confidence that they’re going to grow, and that becomes a hard dial to suddenly change.”

The ‘personal touch’

Collins argues that, for accountants and advisers, this uncertainty is “bread and butter”. These scenarios are where a relationship of trust and understanding can really come into play, he says.

“When you look at the work that accountants and advisers do, a lot of that is working through those mechanisms that will allow businesses to survive on the cash it’s got coming through.

“So it’s about providing the appropriate service and tailoring to a particular client’s needs and being able to understand them.”

This is echoed by Clifford, who argues that the demand of what’s required of accountants is changing.

“More than ever, that trusted advisor role we play is becoming a critical factor. We’ve got years of experience talking to similar businesses, and that ability to benchmark is invaluable to our client base.

“It’s not just the transactional side of filing accounts and tax returns. It’s about spending the time to actually understand the business and its history.”