While there was some encouraging news for business in Budget 2021 earlier this month, the alarm bells should be ringing for those that are considering taking on more debt being offered in the form of loans by the government, writes H&Hendricks Partner Ashley Bancroft.
The extension of the job retention furlough scheme to September gives some clarity and certainty for businesses that have been taking advantage of it. Business rates holidays and other grants are good news for business too.
The new recovery support scheme to replace the CBILS loans will be welcome news to those businesses that have been burning through their cash surpluses or running significant overdrafts.
But these schemes mean that businesses will become even more indebted by the end of the year. It may be called a business recovery scheme but for me this is simply putting off the inevitable for a number of businesses. As politicians seem to like to say – it’s kicking this particular can down the road instead of dealing with the issue.
For many businesses the immediate outlook has fundamentally shifted as a result of the lockdown. There will be no immediate return to normal for them. For many there will be no gradual return to normal either.
These businesses need to have a very clear focus on what they will look like as the country starts to open up again, and what their forecasting tells them about the prospects for their sales and income generation are going to be.
Unemployment is rising and will continue to rise for some time to come; there is inevitably going to be an increase in taxation, which means disposable income will start to reduce. Initiatives to stimulate the economy will take years or maybe decades to have the results that some businesses require.
It’s all very well having the chance to borrow another £250,000 to trade through to 2022 0r 2023, but what’s the plan for paying it back? Not all businesses can base their activities on pre-pandemic trading or forecasting – that has all gone out of the window now.
I like that the government wants to foster innovation to accelerate growth, and the additional capital can support that. But how do you foster a new culture of innovation in the business when senior management individuals have been under huge pressure and trauma for the past 12 months just trying to survive. That is very challenging.
If a business is bringing on more debt then it is important that at least some of that is allocated to future projects that will result in a more accelerated growth profile. The challenge for many businesses will be planning that and creating the strategy to make it happen.
Business leaders facing this prospect should look for an independent perspective on how the business is currently operating and what the potential is for the next year or the next three-to-five years. Is a new business plan in place and does it ensure survival?
We are having conversations just like this right now with businesses that have been in survival mode and now looking to recovery. We offer that independent expertise and experience that can provide your business leaders with the insight they need to get them through this crisis and back on a growth trajectory once more.
If you want to know more get in touch with us.