A Cocktail of Problems Causing Headaches for Business Owners

The pandemic may have moved into a new phase and life is perhaps looking a bit more stable as restrictions are lifted.  However, for many businesses, the problems are far from over.

Business owners now face a cocktail of problems to deal with as the financial impact of the pandemic continues to leave many sectors both shaken and stirred.  Each business may face a different mix of issues depending on their sector and how a business is structured, financed and operated.  We discuss some of the common issues we are seeing when clients come to us for advice and no doubt more issues will be added in the coming months. 

Increased costs of Raw Material

This is a common factor across a number of sectors.  Whether is it building material, paper in the printing industry or ingredients in the catering sector, most businesses are now facing increased raw material costs driven by increased costs of production and transport.  Supplies and availability is the driving factor.

And it’s not just costs – for example, in the construction sector availability of raw materials and building components is also an increasing issue.  With large infrastructure projects like HS2 and the national house building boom and the buying power of the larger players in the construction market soaking up the available bricks, concrete and other key materials, it can be difficult for small and medium sized firms to obtain the material they need for their customers.

Freight Costs and Transport

Clients are reporting significant freight costs particularly when bringing in goods from abroad. 

The global shipping industry is dealing with logistical difficulties, changing international trade rules (including Brexit) and rising climate concerns, the increased costs of which are being reflected in rising freight costs. 

It is reported that the costs of importing shipping containers to the UK from China has increased by 800%, notwithstanding any cost increases for the contents of the container.

The cost of moving freight within the UK has also seen significant cost increases – the sudden demand for parcel deliveries during the pandemic is one of the reasons for an increase in the scarcity value of both drivers and vehicles.  These factors, together with increasing fuel prices, have helped drive transport costs up significantly.

Power and Energy Cost

Energy prices are forecast to rise substantially this year and have already seen the failure of a number of energy providers who cannot compete.  Any industry reliant on high energy usage will face increased production costs combined with a reducing pool of energy providers.  Rising energy prices are predicted to be with us for some considerable time.

Staff Availability and Cost

Whether it was the pandemic or the Brexit effect, many overseas workers have returned home or have transferred to other countries, leaving certain sectors with the headache of staff recruitment.  This includes skilled tradespeople in the construction industry, HGV drivers and seasonal workers in a range of sectors.  Competing for available staff can mean having to offer increased wages, the costs of which can be difficult to pass on to customers.

Hospitality is another sector where we have clients telling us of the problems of recruiting staff as well as an increase in ingredient costs. Notwithstanding the restrictions placed on these businesses for many months, staff recruitment and retention is a big problem as many staff left the sector in search of more stable and certain employment.  It’s not just the costs of replacement staff – it’s also the risk to reputation and levels of service which can impact businesses in this sector if new recruits take time to train up.

Pandemic Debt Legacy

Many businesses are struggling to deal with issues like the ones outlined above against a background of debt built up during the pandemic.  Some businesses still have significant arrears due to HMRC for VAT and PAYE they were unable to pay during the pandemic and will be looking to negotiate time to pay arrangements.  Whilst forbearance from HMRC to repay these debts is welcomed, the challenge faced by businesses now is to trade at a profit level sufficient not only to pay ongoing costs, but to generate a “super profit” to repay the debt accumulated during the pandemic.

Landlords have also borne some of the brunt with tenant companies unable to pay all of their rent during the pandemic.  The moratorium on landlords ability to enforce their rights to collect rent debts and evict tenants is due to end in March 2022 leaving any business with rent arrears and no agreement to deal with those arrears vulnerable to legal action.

The moratorium on commercial debt enforcement was also lifted in October 2021.  There are now signs that the forbearance and patience is being eroded amongst creditors with significant increases in the use of CCJ’s and enforcement procedures to collect debts.

Cash Flow and Overtrading Risks

After a prolonged period of supressed trading activity, some businesses are now experiencing a “sling shot” increase in demand for their goods and services as normality returns.  Whilst this is a welcome prospect it does of course come with risks.  Overtrading and the requirement to finance a rapid expansion in sales can cause major cash flow issues at a time when cash is already under pressure.

And Let’s Not Overlook Interest Rate Rises and Inflation

 All of the factors above will both contribute to and suffer from the rapid inflationary rises as the costs of goods and services continue to rise.  This in turn is impacting on the forecast rises in interest rates used to try and keep inflationary rises in check.

However, as a consequence, businesses that have enjoyed low bank borrowing and finance costs for many years due to low interest rates, will now be faced with increased costs of finance.  This will add to the pressure for many businesses including those who took up the options of Bounce Back Loans and CBIL Loans during the pandemic – at a time when many businesses are in the early stages of repaying these loans, increased interest rates will soon present a further challenge and increased pressure on cash flow.

Headaches and Hangovers to come?

Some or all of the problems outlined above, together with many others we could list if we had the space, are all ingredients in the cocktail of problems an individual business might face in the coming months.  The problems may be exacerbated by inflationary pressures and an economy that seems somewhat unsteady on its legs at the moment.  For many businesses there are some “Dark ‘n Stormy” times ahead.

Seeking advice early is critical in any circumstances – for any assistance and guidance please get in touch with Andy Matt or the team.