Published by Alex Knight on 8 January 2019
We live in uncertain times and with various opposing views trying to predict the months and years ahead, things are not getting any clearer.
At the time of writing, the Bank of England worst-case scenario looks particularly bleak for the economy, jobs and house prices with predictions of significantly reduced growth and potential recession not far away. The more optimistic forecasts still suggest that the economy will grow once we are free from the shackles of the EU and have the ability to make better trade deals with the rest of the world. Of course no one yet knows on which side of the channel the infamous £350m a week will fall.
What we do know is that life must go on and for those running businesses the uncertainty is at best irritating and at worst a very real problem. It is, of course, difficult to advise exactly how worst-case should plan for the unknown. However, we have set out below some areas that the typical business might want to consider so that you can be prepared for the unexpected and weather any storms ahead.
It may seem obvious but how much cash do you have in the business bank account? Do you know what demands there will be on cash going forwards?
- A cashflow forecast may be helpful to estimate the timing of cash inflows and outflows and highlight any pinch points where cash is tight. It doesn’t have to be complicated.
- Consider whether you need to talk to your bank now for renewing overdraft or borrowing arrangements.
- Think about establishing new banking relationships now if you want to change banks or have more than one bank.
- How would your business cope if interest rates were to increase?
- If you are buying or selling overseas, can you protect the business against exchange rate fluctuations?
One of the biggest concerns in the south east region is the potential for disruption to supply chains if there are delays at ports or other transport hubs where goods are brought into the country from the EU. Those who work on “just in time” supplies are particularly vulnerable.
- Talk to your suppliers and find out what they can do to ensure that supplies are not disrupted.
- Consider also where your suppliers get their raw materials and other inputs. Just because your immediate suppliers are UK based does not mean that you will be immune from any problems.
- Are you able to negotiate better terms with your suppliers? e.g. bulk discounts or longer payment terms.
- Treat your suppliers as you would wish to be treated – if you pay them promptly and resolve any queries quickly then this may lead to a better relationship and improved credit rating.
- Credit ratings can also be affected by issues like submitting accounts to Companies House late or too close to the filing deadline. You should also consider whether filing full accounts rather than filleted would give a better impression. Small changes may help improve your credit rating.
If stocks of raw materials or finished goods are vital to your business, think about how many days or weeks your stock will last.
- Do you have the physical capacity to increase the amount of stock you hold?
- Some businesses are already reporting difficulties in acquiring certain stocks and also rising prices. Do you need to stock up now?
- If inflation increases, how will this affect new purchases, the stock you hold or the price for which you can sell?
- If you don’t need to increase stock, don’t do so just because everyone else is. Cash can be tied up unnecessarily in holding stock.
- What happens if the price falls or a customer fails and you are holding a lot of expensive stock?
- Make sure your insurance cover is suitable for additional stock.
- Maybe you have surplus storage space that you could let to another business temporarily.
Needless to say, businesses are dependent on customers but they will also be looking for better deals so consider how your business can stay competitive and protect itself at the same time.
- Is your customer service at the highest level it can be?
- Can you offer better products, keener prices or other ways of retaining customers?
- What would happen to your business if some of your customers failed? Are you particularly reliant on one or two customers?
- Ensure that you have appropriate credit policies in place for your customers and that you follow up older debts systematically.
- Do you have contracts in place to back up your relationship with customers if there is a problem?
- Are there new markets available or other opportunities to extend your customer base?
With unemployment currently very low it is already proving difficult to recruit suitable new staff in some sectors. While immigration may be restricted to those with higher skill levels in the future, we don’t yet know the full details so planning how to recruit, train and retain staff now is important.
- Wage inflation is rising a little; the minimum wage and auto-enrolment pension contributions are increasing in April 2019 too. Have you factored this in for future pay reviews and budgeting?
- Are there any other ways that you can incentivise and retain staff? Consider what you provide in terms of skills training and benefits in kind.
- You may need to think differently to attract and recruit new staff. Are there new channels for advertising for staff e.g. on social media, and can you offer part-time or flexible working?
- Workers rights and paying appropriate employment taxes are definitely on the agenda so zero-hours contracts and the use of service companies may need reviewing.
Investing in new technology may help improve manufacturing processes, accounting and management information or sales opportunities.
- At the recent Budget, the annual investment allowance was extended to give tax relief in the year of expenditure on relevant plant and equipment up to £1m in certain circumstances.
- The UK is still known for developing innovative techniques and products which will need to continue to maintain competitive advantages in a different market place. R&D tax credits which give an additional 130% relief on relevant expenditure are still available to companies so take advantage of these if you have projects meeting the criteria.
- Tax relief is also available for patented products so consider whether this could be relevant to your business.
7. Business owners and tax
It may be a good time to think about how you interact with your business and your future relationship with it.
- Consider reviewing your dividend policy. While it is often better from a personal tax point of view to take regular dividends, they can be credited to loan accounts to draw later if the shareholder does not need the cash immediately to maintain an additional cash buffer in the business.
- You can loan money to your business and charge interest if appropriate. Basic rate taxpayers have £1,000 of interest tax free (£500 for higher rate taxpayers).
- If you decide to sell or wind up your business, capital gains tax rates are still attractive, where applicable.
The ICAEW have a range of resources available to help businesses prepare for Brexit, please click here.
Obviously, every business is different and each will be affected in different ways. Please speak with your usual Kreston Reeves adviser, or contact us here on +44 (0)330 124 1399 for advice specific to your business.