22% of SMEs not projecting cashflow despite economic crisis
Up to a quarter of SME businesses have no cashflow projection process in place despite the global economic crisis, according to a new poll by UK Top 10 accountancy firm Azets.
During a recent digital event themed financial resilience, attended by 183 SME business leaders, 22% of respondents said they do not have a cashflow projection process in place. A further 6% said they do not know.
The revelation comes as analysts predict the UK will suffer the deepest recession of all the world’s largest economies in 2023 because of rising energy bills, high interest rates and a rise in failing businesses.
Insurer Allianz Trade forecasts business insolvencies in the UK will rise by 15% in 2023 to 27,100 as firms buckle under the weight of higher costs.
Meanwhile, latest ONS insolvency statistics for October to December 2022 (Q4), reveal the total number of insolvencies registered in 2022 was 22,109 – the highest number since 2009 and 57% higher than 2021.
The liquidation rate in 2022 was the highest since Q3 2015, with one in 202 active companies entering insolvent liquidation.
Donald Boyd, partner and UK head of Ggwth at Azets, has urged business owners to put cashflow projections in place for a minimum of 13 weeks, with insolvencies set to soar even higher in 2023.
Speaking on the Bang the Drum podcast, he said: “Far too many SMEs still run their business based on what’s in their bank account. Cashflow forecasting is critical SMEs need a minimum 13-week cashflow projection or risk running out of money.
“We’re still seeing a lot of businesses living off Covid funding because it was easy to get bank debt. However, more and more businesses are now starting to feel the pinch having been lulled into a false sense of security.
“The most important thing you can do is to know exactly what’s happening in the next 90 days in your business, so you can seek help, if necessary, based on early warning signs, as opposed to having money in the bank one month and bills to pay the next, with only 45 days’ worth of cash left.
“We’ve got a situation where a lot of SMEs are receiving cash in 60 days or longer but are having to pay out in 30 days because of updated payment terms during the pandemic. For a lot of businesses, this stifles growth because they can’t capitalise on opportunities, especially without appropriate financial forecasting.”
Donald Boyd believes significant changes in the business environment can present opportunities, and well-run SMEs that are able to ride the wave of recession can come out thriving.
He added: “The beauty of the SME market is how resilient the businesses are because they’re more able to pivot, reinvent themselves, and change their business model when times are tough. For much larger businesses, this is more difficult and costly.
“If you’ve got smaller business with 20-30 people, it’s relatively easy to restructure and get the right business model with the right people, with the right advice and funding partners around you.”