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Companies face up to post-pandemic bounce back risks

Author: ICAEW Insights

Published: 18 Jun 2021

Businesses betting on the economic surge as industry unlocks could be left in the dust if they don’t keep their debt in check and evolve with the times, says Bhimal Hira, Partner at Jeffreys Henry.

Despite the recent delay to lockdown measure easing, business confidence remains robust as the success of the UK vaccine programme increases hopes that large parts of the economy will reopen later this year. However, Bhimal Hira, Partner at Jeffreys Henry, cautions companies to remain level-headed in their approach so hard-earned efforts to stay afloat are sustained and not short-lived.

“I think in the market there's a lot of optimism, perhaps even over-optimism”, said Hira. “There is a bubble of pent-up demand where people just want to go out, go to restaurants or bars, go shopping, and we will have a big uptake in money moving around in the market.

“Maybe that's for the first three or six months, potentially, but is that sustainable? Will it die down significantly in six months’ time? Or are we going to go back to pre-COVID levels where things are more sustainable? I think that is a big question mark in the market at the moment.”

Hira says there is a fine line between optimism or over-optimism. He is seeing many operators, across multiple sectors, viewing the removal of lockdown restrictions as an opportunity to expand. He predicts there will be a lot of expansion and investment into the market from banks and private investors. But it's easy to lose track and forget a vital component to expansion - sustainability.

Hira points out that in such an uncertain economic environment, businesses should rely more heavily on their professional advisers to provide up-to-date financial information. This way, they can make business decisions in near real-time, reacting quickly to government decisions or market trends, rather than waiting and potentially paying the consequences.

Don’t forget about debt management

Hira also reminds businesses to not let their debts get out of control. “What a lot of operators need to be careful of is that many people have taken on loans, Bounce Back Loans or CBILS, and also deferred things like VAT and PAYE. I think that has to remain front of the mind in making sure that whatever happens in the future - whether there is a sudden economic dip or things continue to surge - that they have a plan to repay this and not try and delay as long as possible”, he said.

In most cases, businesses should proactively try to reduce their liabilities as quickly as possible, says Hira, so once they come out COVID they're in the best possible shape. “A lot of operators might do well over the next three or four months, but then in six months’ time, all the loans kick in for repayment. Now all of a sudden, they're struggling to service that debt. I think they need to take a short and long-term view and manage those upcoming liabilities,” he added.

Leveraging tronc to retain staff

Commenting on the staffing issues faced by sectors such as hospitality and retail - sectors in which Jeffreys Henry specialises - Hira states that currently, it’s an employee’s market, where workers can pick and choose where to work. As a result, many firms are coming up with innovative ways to try and attract as many staff as possible, using things like tronc to increase the overall hourly rate and the wages of individuals.

Hira explained: “Tronc was a viable tool in the pre-Brexit, pre-COVID years as a means to reward and motivate employees. A lot of employers are now leveraging it further by providing an opportunity for performance-based payment.”

Businesses must be resilient to change

At a time where the economic landscape shifts on a weekly, even daily, basis, businesses can't rest on their laurels and expect things to carry on as before – businesses have to stay resilient. As a result of COVID, Hira thinks there will be changes in the market, especially in consumer behaviour.

“The businesses that will be successful are the ones that will look at the data and keep evolving with the times”, stated Hira. “The main point is that businesses must remain resilient”. 

Business Confidence has reached record highs, as the success of the UK vaccine programme and declining infection rates increase hopes that large parts of the economy will reopen later this year, according to the latest ICAEW Business Confidence Monitor (BCM)

Follow this link for ICAEW’s exclusive five-part series - ‘Companies face up to post-pandemic bounce back risks’ - which gathers chartered accountant insight on problems faced by hospitality, retail, tourism and agriculture.