Number of SMEs going under set to increase

ended 01. June 2022

The FSB has predicted that as many as 500,000 small businesses could go bust ‘within weeks’ given soaring input costs, supply chain issues and reduced demand. Are you seeing any company directors freezing or reducing their pension contributions, or any other signs of distress among business owning clients? And what are you advising they do if that call or email comes in?

6 responses from the Newspage community

Star Quote
Dither and delay is often a sign of a lack of ability to pay. Unfortunately, this appears to be the experience of our corporate clients. We are increasingly being approached about breaches of contract and interpretation of break clauses in contracts, which is a clear sign that many companies are feeling the strain. We have also seen the number of legal challenges regarding so called penalty clauses increasing in an attempt to save money. The number of legal challenges are often a good indication for how businesses are faring as businesses that are feeling the strain often need to resort to litigation to protect their income or to reduce their expenditure. In fair financial climes, companies have the ability to settle bills on time or to see out contracts.
The small businesses owners I've spoken to are battening down the hatches. With staff wages and input costs rising and recession on the horizon, they're understandably wary of making any financial commitments in the short term. The old adage that business owners get paid last feels apt at the moment, with pension contributions and personal finances being put on the back burner for the time being.
"According to the Office for National Statistics, around 400,000 business closed in 2021. However, in quarter one of 2022, 137,210 business closed which was a 23% increase over the same period in the previous year. There will certainly be business casualties in the coming weeks and months, but the extent of these casualties is currently unknown. This sentiment is reflected in the attitude of the limited company directors we work with. When discussing business protection and income protection, or additional commercial property purchases, many are putting these types of financial decisions on the back burner due to current levels of economic uncertainty."
The company directors we work with are currently managing to weather the inflationary storms and on the whole their companies are financially robust with good cash reserves. However, they do see the UK entering into a recession later this year. If anything this has made them want to increase their savings and pension contributions rather than reduce them, and if necessary cut back on other expenditure. Their investments are their Plan B in case their business suffers and an eventual exit becomes more difficult to achieve in the future. Bear in mind that corporate taxes and dividend taxes are all heading significantly higher as the UK faces its heaviest tax burden in three generations. Pension contributions are still the best way to extract money from the company tax efficiently and reduce corporate tax liabilities."
Fortunately, we have not had any of our business owner clients contact us in distress as yet. However, if any were to do so, we would need to ascertain how serious the problem really was, which might involve talking to their accountant. In the most serious of cases, we would probably advise that the business owner stops making pension contributions until the situation eases. We would then regularly check in with that client to ensure that they do not stop the contributions for any longer than necessary, as this can damage their long-term financial plans. Where it can be demonstrated that the concerns are not justified, we would encourage the client to stay on track and keep making the contributions.
In times of hardship, it is vital to maintain essentials while knowing that luxuries can be deferred. Pension savings are for the future while bills and insurances are for today. You can plan for and restart savings but you can't do much if things go wrong. It is therefore vital to maintain existing safety nets so that you and you family don't regress further should the worst happen."