Wbg urges SMEs to plan for the worst and hope for the best

With many SMEs confronting an imminent cash flow crisis, caught between the covid related slowdown, longer dated trading terms and the culmination of the furlough scheme, accountants Wbg are advising SMEs to plan for the worst and hope for the best.

That’s because many operators have accrued significant debts over the last 18 months as they have struggled to keep their operations afloat, and the culmination of the furlough scheme is set to heap further financial pressure on their ability to service these debts.

Catherine Livingstone, partner and head of the business advisory services team at Wbg, said: “Many businesses took advantage of bounce back loans and VAT deferment as, in the early stages, they were unsure what impact Covid would have on their operations and they were right to be cautious. But now the time is rapidly approaching when they need to pay back these debts.

Ms Livingstone suggests that a key issue that all SMEs should consider sooner rather than later is to review cashflow projections, be prudent and identify any issues arising so they have time to approach the bank to arrange an overdraft or determine if they have any scope to delay outgoing payments or bring debtors in quicker.

“If they prepare cashflow projections on a worst-case scenario and are able to determine that they can survive, then they will be well prepared and be in a sound financial position when the economic situation transpires not to be as bad as feared,” she said.

“SMEs need to be realistic and, where possible, seek to renegotiate the best they can with suppliers and customers; renegotiate debtors terms to get the money due to them in as quickly as possible and delay payments if they can.”

Ms Livingstone stresses that while cashflows might seem perfectly adequate at the present time, that may be because SMEs have deferred their VAT bills and have money in the bank because they have taken out bounce back loans.

“Now is the perfect time to prepare cashflow forecasts,” she said.

“I would urge SME owner/managers to review the longer-term financial health of their operations as a matter of urgency.”