Mini budget, maximum fallout – scoping out SME working capital concerns

The now notorious mini budget set a rather sizable economic cat loose among flocks of financial pigeons. The implications of the previous Cabinet’s financial announcements are still reverberating in the markets, but are already resonating through personal finance in the form of suspended mortgage products and pension fund turmoil. Repercussions for businesses who import have been a major discussion point in the fallout post-announcement, but what are the likely implications of these continued financial aftershocks for company finances, especially SMEs who mainly deal domestically?  

The country as a whole has been discussing the likelihood of a coming recession for some time now, and it would be an unwise business owner who hadn’t at least considered the likely impact of economic shrinkage on their own operations. These are businesses already beleaguered by late payments, and many still recovering from the ups and downs of Covid. While reductions in National Insurance and sustained support for the Small Enterprise Investment Scheme may be welcome, balanced against rising interest rates and of course energy bills, the balance sheets may well be already tipping in the wrong direction for many. 

Critical to getting this under control will be sustaining cashflow. And with what is predicted to be a sharp winter fast approaching, starting with a solid understanding and control of working capital is most vital of all. Drops in brand levels of consumer confidence and spending are having widespread effects on businesses across a range of sectors, and sound financial planning will be essential when it comes to overcoming the next few months. This is already becoming an issue: one recent piece of research from Equals Money found that 92% of businesses they questioned had already encountered cash flow issues. Greater concerns will come if businesses under significant strain try to shore up their finances based on short term need and urgency-driven decisionmaking, which can come with long term stings in the tail.

Loans, either from traditional financial institutions, neobanks or family friends, tapping into credit card finance and even B2B Buy Now Pay Later options were all common approaches to overcome cash flow gaps for small companies during Covid and even before the pandemic hit. But, while they bridge short term liquidity issues, as many are finding with the Government Covid loan support, the business burdens can be lengthy and significant. 

In contrast, many companies overlook new-age financing options due to a longstanding bad reputation of the industry. Yet, these may actually provide the kind of no-strings, short term boost to the business’ coffers that they may find that they urgently need. Newer entrants to the market – like the offering at www.arex.io – have rebalanced the equation between lender and SME, meaning that much more of that much needed cash gets back into the business that created it, and in some cases, this can be tapped into on a case-by-case basis rather than being handcuffed to long term contracts.

The key is in the use of data, which provides an invaluable and tangible picture of the business’ health. In many cases traditional lenders and neobanks are unable to ingest the data in a meaningful way to effect the cost of financing. It then falls to those private fintechs to collaborate with institutions such as banks to support and bridge the capital gap for SMEs.

Business confidence is already falling, alongside consumer spending. September’s mini budget has accelerated this slide, and many in the business community are prepping for a rough and rocky end to 2022 and even start to 2023. If big businesses are struggling, the situation will only sharpen for SMEs in their supply chains and those likely to be seen as discretionary spends by most consumers or businesses. Ensuring that working capital for now and cashflow forecasting for the future are both clearly defined, and that workable financing options have been well scoped out and the fine print carefully scrutinised, should stop this impending winter of likely discontent from hanging around the country’s SMEs long into 2023’s springtime.