Covid-19, skills shortages, supply chain issues, an energy crisis - to say that businesses have been dealt a tough hand over the past few years would be anything but an understatement. And now, the UK government’s recent decision to cut back support for businesses managing sky high energy bills serves yet another blow.
Manufacturing businesses are certainly one of the industries bearing the brunt of this announcement, with the latest PMI figures at a 31 month low. Indeed, BFS’s latest SME Confidence Tracker found that 74% of manufacturing SMEs believe that the current economic landscape is worse than the pandemic and just 10% believe that they are fully prepared to deal with further cost rises.
There is a need for urgent action from the Government, to provide clear direction to ensure SMEs can maintain cashflow, while providing the right level of support to keep them growing. However, while the latest energy bill announcement shows that current support is still not adequate, there are measures businesses can take themselves in order to put their best foot forward in 2023.
Squeezed at both ends
As sky high costs and interest rates are squeezing cash-strapped SMEs at both ends, cashflow must be at the top of business owners' agendas.
Making good use of the accounting tools available, regularly reviewing financial data, and ensuring effective credit control will all help businesses to improve cashflow. Implementing these tactics will improve resilience and profitability, whatever may be happening in the wider economy.
Protect yourself from bad debt
Our previous iteration of the SME Confidence Tracker, released in May, found that 24% of manufacturing SMEs have suffered from bad debt in the previous 12 months, owing to customer non-payment or protracted default. This is significantly higher than the 21% of businesses that reported having experienced bad debt in 2021. Indeed, 46% of manufacturing businesses say it’s taking longer for customers to pay them since the pandemic, indicating that this challenge is only getting worse for SMEs.
We wouldn't be surprised to see businesses struggle with similarly high levels of bad debt in 2023, but risks can be minimised with a couple of simple steps.
It's more important than ever for businesses to run proper credit checks on their customers to avoid defaults on payments. It is also key to ensure admin processes are set up to protect businesses - for example taking the time to ensure all contracts are set up with clear terms and conditions, and agreed and signed by customers.
Plan B is not enough
If the last few years have taught us anything, it's that businesses’ next challenge will be a case of when, not if. Even the most experienced individuals in the industry don't know what our world may look like, even in six months' time, but the good news is that businesses can plan for multiple eventualities. For example, stress testing various Bank of England interest rate rises against your business’s debts can be a useful strategy to understand how potential impact rate rises may have on your repayments.
The word of 2023 - resilience
Back in the autumn, our SME Confidence Tracker showed that 45% of manufacturing businesses say they are cutting back on investment due to the cost of doing business.
But, it is important to not lose the entrepreneurial spirit which makes British manufacturing what it is - great. While off the cuff decisions should not be made - but fortune favours the brave, and sensible investments, fueled by optimism and determinism, can help a business grow.
2023 is unlikely to be plain sailing, but SMEs have repeatedly proven that they are resilient, and truly the lifeblood of the UK economy. While we hope that the government will step up and provide a concrete plan to give SMEs the help they deserve, now is not the time for business owners to bury their heads in the sand. If businesses take real steps to secure their cashflow and improve their resilience, they will be much more likely to weather this economic storm.
First seven members join NG’s Great Grid Partnership
Agreed. It is all pretentious posturing and trite branding with no meaning or gravitas. Prepare to be disappointed by all of these greats/grates.