Supply Chains: 2 in 3 SMEs predict a 5-15% impact on net profit margin due to global disruption

Two thirds (65%) of UK SMEs are actively looking to grow over the next 6 months, according to the latest monthly SME Recovery Tracker, from ACCA (the Association of Chartered Certified Accountants) and The Corporate Finance Network (CFN).

However, just under 1 in 4 businesses (24%) had suffered from supply chain delays in the last three months, and the same number expected to see this continue for at least the next six months. 80% of the practitioners polled said they expected delays would result in a 5% or higher blow to net profit margins, a critical setback for most of their clients.

Adding to this, surging inflation, interest rate rises, complications gaining access to finance, the rise in National Insurance contributions and the energy crisis – further heightened by anticipated impacts of the conflict in Ukraine- are piling up on UK SMEs.

Looking at their current position, accountants said nearly a quarter (23%) of UK SMEs’ growth and finance ambitions are being hampered by their levels of existing debt, such as the Coronavirus Business Interruption Loan Scheme (CBILS) and Bounce Back Loans Scheme (BBLS).

SMEs turning to internal working capital & short term loans to unlock finance 

Further highlighting the strain reaching through the supply chain, accountants predict that over a third (34%) of SME clients will be looking to release more finance in the next 3 months from internal working capital, examining whether they can extend terms with their suppliers. Worryingly, 13% are expected to turn to overdrafts and short-term loans to secure further crisis finance while 25% of clients will be negotiating with creditors, lenders and HMRC regarding liabilities which are due over the next 12 months.

Overall, late payments continue to place a huge burden on the SME economy at a time when businesses critically require the capital for survival. Data shows this is an ongoing trend – the October 2020 Recovery Tracker, polled during the height of Covid-19 impact in the UK, found that two thirds (66.7%) of UK SMEs experienced increased instances of late payment. Over a year later in December 2021, the Tracker survey revealed that SMEs were still struggling with this issue as over a fifth (21.4%) of UK SMEs had increased their credit checks on customers and a third (30.7%) tightened their payment terms.

The impact of the Chancellor’s Spring Forecast 

With the spring forecast due to be announced in three weeks’ time, ACCA calls on the government to consider SMEs’ recovery and the health of their supply chains when finalising measures by increasing employment allowances in line with CPI, showing long-term support for the struggling hospitality sector by securing an indefinite reduced rate of 12.5% VAT for the industry as well as creating breathing room for businesses with a 12-month delay to the Health and Social Care Levy in NICs.

Claire Bennison, head of ACCA UK, commented on the findings, “The spring forecast later this month needs to support SMEs and the ambitions for recovery. Additional taxes could well be debilitating. While our data shows optimism among the SME economy in the UK it also outlines the stark fiscal burdens that are holding back our entrepreneurial nation. With the continued impact on supply chains and energy prices, SMEs have more of the storm to weather.

That is why the ACCA is calling on the government to seize the opportunity in the upcoming spring forecast to give SMEs the boost they need and not hinder them. Steps such as increasing employment allowances in line with CPI, widening the scope of Help to Grow Scheme to include a wider pool of businesses and securing an indefinite reduced rate of 12.5% VAT for the hospitality industry can significantly help to alleviate the financial strain on SMEs and ensure their optimism continues.”

Kirsty McGregor, founder of The Corporate Finance Network, adds, “Rising energy costs and continued nervousness around the stability of supply chains, as well as the profound impact of the conflict in Ukraine, will bring significant strains to the SME sector. Governments therefore need to consider this and offer the right support to bolster the UK economy at a time of great uncertainty, in order to ensure that business owners have confidence to continue to rebuild our economy.”