£50bn reopening working capital risk for SMEs in the North West

Businesses in the North West looking to reopen and capitalise on a potential £50bn boom in consumer spending could face a major new insolvency risk – a lack of working capital, a leading restructuring expert is warning.

The warning follows comments earlier this year from the Bank of England (BoE) Chief Economist recently said that consumers have saved more than £180bn during lockdown, and that when the economy re-opens consumers could be set to spend as much as £50bn.

“The economy is currently set for a succession of ‘opening-up’ dates in the coming months with many thousands of businesses gearing up to begin trading again.

Unfortunately moving from being effectively mothballed to full-on trading can bring its own suite of financial problems, in particular a lack of working capital, and it is important that business owners are aware of the risks” said Nicola Clark, Head of Restructuring in the North West at Azets, the UK’s largest accountancy firm specialising in the SME market.

“Businesses, in particular the hospitality, retail and leisure industries will have to invest in stock, staff, systems and processes. During lockdown, many businesses will have had to finance property maintenance costs such as heating, lighting, insurance and inspections. Furlough will soon finish, and any loans or grants will likely be depleted.

“In addition, preparing to start trading again from effectively a standing start will require considerable investment for many businesses and although some will be in the fortunate position that they have cash in the bank, others will be faced with the problem of financing the business opportunities that will emerge during the coming months. Government cash has helped businesses to survive, but the next major challenge is that businesses will also need cash to trade and survive the stresses of reopening.

Nicola Clark urged business owners in the region to plan ahead, avoid trying to operate at full capacity from day one, and ensure there will be sufficient cash on hand to finance daily operations.

“Hospitality, retail and staycation providers should benefit from prompt cash payments, but other business sectors could find it takes weeks and months to be paid. Whilst a consumer spending boom is highly likely, it may not be as large or as swift as has been suggested. We would encourage business owners to take a careful approach to reopening, ensure they have updated their business plan and have a clear view of where the cash will be coming from, and when.

“However, business owners who may be concerned that their businesses may not have sufficient funding headroom should be reassured that there are a number of restructuring options available, and the earlier advice is sought the better”.