Businesses are warned of a perfect storm brewing with Brexit looming and more stringent lockdown measures impacting on Christmas trading
Insolvency figures released last week by the Government’s Insolvency Service show a 42% reduction in the number of company insolvencies in October 2020, compared to the same month last year. This continues a trend evident since the start of the pandemic, driving company failures to historic lows in spite of the economic turbulence created by Covid.
However leading restructuring and insolvency professional, Oliver Collinge from PKF Geoffrey Martin is warning of a perfect storm facing businesses.
The regional tier system has put cash flow pressure on businesses that are already struggling, particularly in retail and hospitality. The new lockdown measures have forced many businesses to close once again and the outlook is uncertain for how and when they can reopen, particularly in the areas which may continue to face more stringent restrictions.This will undoubtedly impact Christmas trading. The end of the Brexit transition period in six weeks is also likely to place additional pressure and costs on companies that trade with the EU.
Oliver Collinge, Director at PKF Geoffrey Martin & Co said:
“The latest insolvency figures may appear counterintuitive to many given we're in the middle of a pandemic, but they are a result of the huge effort made by government to support businesses through the two lockdowns and we expect the trend to reverse sharply in 2021. As government life support is withdrawn, we anticipate a spike in company distress, particularly in hospitality, leisure and retail. Many normally successful firms are experiencing financial pressure and companies which rely on Christmas trade will also be at particular risk.”
“The government’s interventions and the general climate of leniency from HMRC, suppliers and lenders will begin to recede in the new year, but proactive planning and actions at this stage can prevent a challenging situation from developing into a critical one. Relying on existing cash reserves in the hope that things will return to normal soon is a high-risk strategy.”
Businesses are advised not to bury their heads in the sand and instead seek help from professionals. By planning for a variety of scenarios including extended Covid restrictions, planning for the Brexit transition, preparing realistic trading forecasts and having up-front conversations with suppliers, landlords and lenders, firms will be better placed to navigate the challenging months ahead.
For some businesses, when the furlough scheme comes to an end, a reduction in headcount will be unavoidable. Quite apart from the emotional challenges of making redundancies, in many cases there’s also a large cash flow impact. If redundancies are necessary, businesses may be able to claim financial assistance from the Redundancy Payments Service (part of DBEIS) to help pay for them.
Oliver Collinge added:
“It's undoubtedly tough out there for many businesses.. However, there are a wide variety of options and support available to businesses; don’t leave it too late to explore them. Having a restructuring professional guide you through the process can be invaluable in getting the best outcome and will also help you understand and mitigate your risk as a director.”