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Accountants warn of SME cashflow cliff edge

7 May 2020: ICAEW members have backed the package of coronavirus support measures for small business but warned that without flexibility and imagination from government many SMEs face a cashflow cliff edge in the coming months.

Companies understood that the resumption of anything like normal business would require them to practice appropriate social distancing in the workplace, the results also show. To recover to pre-COVID levels, businesses said they will also need increased demand for their products and services, flexibility to retain staff, and ongoing government support.

Commenting on the results Michael Izza, ICAEW Chief Executive, said that Chartered Accountants are reporting “a solid start” for the government strategy to protect businesses and jobs during the crisis.

However, Izza also sounded a note of caution. “Many SMEs are running down their reserves, with a quarter telling us they could be out of cash by July, and they need to be confident that government will continue to do whatever it takes in the longer term.

“Even as the lockdown is eased, businesses will need to see flexibility and imagination from ministers, to avoid the kind of cliff-edge which would be lethal for many SMEs.”

Spate of insolvencies

ICAEW’s findings come hard on the heels of a report last week by accountancy representative organisations, Group A and the APA, which specifically highlighted similar concerns among mid-tier firms.

The Group A survey of 100 senior decision-makers found that the majority of respondents backed the government’s package of business support. Almost 90% of respondents either partly or fully agreed that the schemes provided a comprehensive range of measures that address the short-term needs of most SME businesses. 

Similarly, 90% of respondents stated that the most effective measure for SMEs was the CJRS, with various forms of payment deferrals, including VAT and self assessment, also ranking highly.

A separate survey from the Association of Practising Accountants (APA) on the impact of the coronavirus on owner-managed businesses found that 57% were currently using the government’s furlough scheme, and 64% marked it as ‘absolutely critical’ in terms of their ability to maintain staffing levels.

Both polls also flagged the growing concern around business cashflow in the short to medium-term. Two-thirds of respondents in the Group A survey (41% partly disagree, 28% disagree) did not agree that the measures are collectively enabling sufficient cash to be put in the hands of SMEs quickly enough to meet their needs in this crisis.

The APA research added that while 40% of owner-managed businesses had cash in the bank to last more than three months, 26% stated that they had six weeks’ worth of cash to continue trading. With the same survey finding that 33% of businesses had seen their turnover reduce between 70% and 100%, the numbers begin to add up for a spate of insolvencies in the coming months.

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