Amid predictions of a post-lockdown consumer boom DEREK FORSYTH says it is important that businesses are aware of a big challenge they may face
Bank of England chief economist Andy Haldane recently said more than £180 billion has been saved during lockdown and the UK could see a £50bn consumer boom when businesses reopen. But while thousands of smaller companies will be looking to capitalise on this expected surge in spending they could face a major new insolvency risk. Moving from being effectively mothballed to full-on trading can lead to a lack of working capital.
Businesses, in particular the hospitality, retail and leisure industries, will have to invest in stock, staff, systems and processes. During lockdown, many businesses will have had to finance property maintenance costs such as heating, lighting, insurance and inspections. Furlough will soon finish, and any loans or grants will likely be depleted.
In addition, preparing to start trading again from effectively a standing start will require considerable investment for many businesses and although some will be in the fortunate position that they have cash in the bank, others will be faced with the problem of financing the business opportunities that will emerge during the coming months.
Government cash has helped businesses to survive, but the next major challenge is that businesses will also need cash to trade and survive the stresses of reopening.
Business owners should plan ahead, avoid trying to operate at full capacity from day one, and ensure there will be sufficient cash on hand to finance daily operations.
Hospitality, retail and staycation providers should benefit from prompt cash payments, but other business sectors could find it takes weeks and months to be paid. Whilst a consumer spending boom is highly likely, it may not be as large or as swift as has been suggested.
We would encourage business owners to take a careful approach to reopening, ensure they have updated their business plan and have a clear view of where the cash will be coming from, and when.
However, business owners who may be concerned that their businesses may not have sufficient funding headroom should be reassured that there are a number of restructuring options available, and the earlier advice is sought the better.
Derek Forsyth is head of restructuring in Scotland at Azets, the UK’s largest accountancy firm specialising in the SME market
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