Starting back at work seems slower this new year. Perhaps not surprising, given the huge numbers now working from home for a large part of the week, as well as a continued reluctance to meet in groups during this latest phase of the Covid pandemic. Nonetheless, for businesses hoping to weather the several storms they should expect in 2022, against a background of much reduced government support, there is much to do.
After surveying key areas of the business landscape and identifying the biggest potholes in our end of year newsletter, now is the time to address specific back-to-work action points. Here are five top considerations for the immediate attention of business owners and managers.
Beyond the extension to the Recovery Loan Scheme, now effectively restricted to SMEs and with a reduced government guarantee, State support for Covid-stricken businesses has all but ended.
Recent weeks have, however, seen a further £1bn support package for businesses impacted by the new Omicron variant. It notably includes, for businesses in the hospitality and leisure sectors in England, one-off grants of up to £6,000 per unit of premises. A further £100m of discretionary funding is available for local authorities to support other businesses. Around 200,000 businesses will be eligible for business grants which will be administered by local authorities and will be available in the upcoming weeks. The government will also cover the cost of Statutory Sick Pay for Covid-related absences for small and medium-sized employers across the UK.
Businesses, particularly those in the hospitality and leisure supply chain, should explore these measures as a matter of urgency, while recognising that they are no more than a welcome emergency top-up, and not the basis for stabilising a small or medium company.
Click on this link to read the government’s news in relation to the £1 billion in support for businesses most impacted by Omicron across the UK, and check here if you are eligible for the Omicron Hospitality and Leisure Grant.
2. INTEREST RATES AND INFLATION
On 16 December 2021 the UK base rate was increased by the Bank of England from 0.1%to 0.25%, making the UK the first major economy to experience interest rate rises since the start of the pandemic. Pent-up demand for goods and services, many of which were unavailable or inaccessible for much of 2020 and 2021, eventually drove inflation higher in Q4. Many small businesses have sought credit to buy stock to meet this growth in demand, while consumer credit has also grown. Higher rates can only be bad news for SMEs, with the smallest and earliest-stage businesses suffering most. Managers should review their businesses’ capital structures and consider available fixed term lending or refinancing. The lending market is set to become more volatile and further rate increases are expected in 2022, with a number of forecasters seeing base rates of 1.25% by the year end.
Policymakers are describing UK inflation as “rampant”. After hitting 4.2% in October and 5.1% in November, it is expected to average 6% in 2022, against a government target of 2%. Supply chain shortages, raw material costs and energy prices are all conspiring to keep inflationary pressure in the economy for the foreseeable future. From a management point of view, businesses need urgently to consider pricing and what scope they have available for passing on cost increases to customers.
3. PAYMENT ISSUES
Liquidity is key for a business when its costs are rising, but late payment from customers can be an existential problem, rather than just a short-term cash flow issue. The Federation of Small Businesses says almost a third of members surveyed have seen the late payment of invoices increase over the last three months, with at least 8% warning that the problem has become so bad that it was threatening the viability of their business. Other SME trade groups are arguing that maximum terms of 30 day payment should be the norm and become enshrined in corporate governance codes. In reality, firms will this year need to be robust with slow payers, attempting to invoice in advance where possible and resorting to the threat of court action when necessary. Professional advice on cash flow and debtor management is available.
Recent research from Workvivo shows that 60 per cent of employees are planning to leave their jobs in the next 12 months, saying their decision is not driven by salary. Work patterns and career priorities have been changed by Covid’s disruption to ‘normal’ working life. Retaining and recruiting skilled staff is increasingly challenging and, regardless of motivations cited by employees, financial incentives remain the strongest tools for attracting talent and slowing staff turnover. The main alternative is attempting to recruit from a wider pool. This applies not only to executive and skilled positions, but to the less skilled end of the workforce, where relatively cheap labour is no longer readily available. Both these tightening factors in the labour market are adding to a wage spiral and have been compounded by the effects of Brexit on labour supply at all levels. The potential for valuable working capital to be impacted adversely by recruitment issues is very real. Managers need to consider the role of staff incentive plans within their capital structures, as well as the exploring the potential for operational restructuring to save cost and optimise productivity.
The pandemic appears to have accelerated IT investment decisions and intentions in many businesses. This makes good sense when futureproofing an enterprise against further shocks. In many ways, technology is the glue that will hold together a strategy to survive and prosper. Hybrid working models, cloud computing and automation are all areas where returns on investment can be very compelling in terms of cost savings, speed to market with new revenue initiatives and connectivity throughout an organisation. The TechTarget/Computer Weekly IT Priorities 2022 survey found that 40% of IT decisionmakers are investing heavily in digital workplace initiatives this year. Business owners would be well advised to review the potential for cost-effective digitisation, as well as efficient ways to fund IT investment.
As ever, the Buchler Phillips approach to business challenges is ‘workout, not bail out’. Don’t hesitate to get in touch for an exploratory chat if your business needs help. Addressing the cracks now will, in many cases, avoid the need to start again.
Our helplines below are open for free initial consultations.
Larry Jobsz 07770 350713
Paul Davis 07976 328991
Jo Milner 07990 816904
Barry Lewis 07831 529831
David Buchler 07836 777748
Let’s get to work!
About Buchler Phillips
Buchler Phillips is the UK’s oldest independent corporate recovery and restructuring firm, with a professional heritage dating back to the 1930s.
Led by David Buchler, former Europe and Africa chairman of global consultancy Kroll Inc, our senior team is equally comfortable advising large corporations, Small & Medium Enterprises (SMEs) or individuals. In addition to decades of experience, each of our Partners brings to any given assignment unique independent insight, free from conflicts of interest, that is often sought but rarely found by clients or co-advisors.
The firm is sector-agnostic, but has particularly strong credentials in property; financial services; professional services; leisure and hospitality; retail and consumer; UK sports; media and entertainment; transport and logistics; manufacturing and engineering; technology and telecoms
Our activities fall broadly, though by no means exclusively, into financial restructuring, including fraud and forensic investigations; operational restructuring and turnaround; expert witness services and recovery solutions for corporates and individuals.
This bulletin is published for the purposes of general information only and does not constitute advice. Any action taken by readers upon the information above is entirely at their own risk