As the summer draws to a close, that is of course if you noticed summer or not, we enter a time of year where thoughts turn to next year’s business prospects. As an accounting firm, we’re mindful that businesses need to be looking hard at their bottom line and how they can operate as efficiently as possible.
Each year, we work with local businesses in the Richmond and Putney area, helping them plan for the following year, ensuring maximum tax efficiency and operational efficiency. Here are a few of our thoughts on what challenges business owners need to be looking at in 2022.
Covid business protection measures come to an end
There is a perfect storm of events nearing as September 30th approaches and earlier next year. On this date most of the governments business protection schemes come to an end.
Job retention scheme ends.
Known to most as the ‘furlough’ scheme, this ends after September. This means that business owners will once again bear the full brunt of employment costs. Think of this as a stress test for businesses that made heavy use of the scheme, as they will now need the cash flow to support employment costs.
Many businesses in the hospitality, health and leisure industries have relied heavily on the furlough scheme to survive. Although experiencing some return to normality since restrictions eased, business for many has not yet returned to pre-covid levels.
Ensuring outstanding receivables from customers are collected is going to be a significant factor underlying a businesses short-term viability. Also a challenge, will be working around potential new customer requirements and necessary adjustments to business models and practices brought about by the pandemic.
In a recent study by Santander, many small business owners surveyed said they did not believe they would see a return to any form of normality until mid-2022. That’s a long time to manage already damaged cash flow prospects. It’s perhaps not surprising that debt collection agencies and insolvency practitioners are readying for an increase in activity later this year and early next year.
Debt collection and insolvency
Business owners looking to recover debt owed to them during Covid, have been frustrated several times through government extensions to the Corporate Insolvency and Governance Act. However, these are now due to end on September 30th 2021. Debt owed before March 2020, when restrictions were implemented, can still be pursued though.
Figures from the Insolvency Service, suggest that unpaid business debt will reach £8.6b in 2021. In 2019 more than 17,000 companies shuttered their doors, with much debt written off and companies facing even more write-offs later this year. With the impact of business restrictions in 2020, some suggestions by financial analysts are that debt could reach £24b. But these figures do not factor in the impact of the lifting of financial support and debt recovery restrictions at the end of September. It’s likely that many businesses will simply not have the strength to continue, having been artificially supported by government schemes.
With a clear focus on improving cash flow, companies will want to chase down as much business debt as possible. A dilemma exists though. Chasing down client debts is a double edge sword. If you’re lucky, important clients will want to clear debts if they can and establish normal relations again, even if this is through a payment plan. Other’s though, may not be in a position to do so, or may simply be holding out, hoping your business will write it off. This will force businesses to look closely at the real value of their client base and force them to choose, as pushing hard will likely end a business relationship.
Commercial eviction ban ends
Many badly affected businesses that have been unable to pay rent since March 2020, face the prospect of eviction proceedings from April 2022 onwards, as the current ban on evictions was extended to March 25th 2022. Unless they can start paying off the rental debt or come to arrangements with their landlords, many will face insolvency proceedings.
Covid Loan repayments
In July, the government reported that it had made £80b in loans to businesses, including both Business Bounce Back Loans and Coronavirus Business Interruption Loans. This equated to around 1.6m business borrowing money through the banks. As mentioned earlier, we already know that insolvency practitioners are readying for an extent raft of new insolvencies, but the Banks too are believed to have invested heavily in strengthening their debt recovery teams, as it seems they are expecting a raft of defaults on these loans.
The main concern here is the potential for a cascade effect with some businesses, as one business relies on another. Very quickly, an insolvency in one firm could have a dramatic effect on several others.
Covid continues
Even though government assistance is drawing to a close, Covid is not done yet. While the severity of cases is lessened by the vaccination program, cases of Covid will still impact businesses and their staff throughout 2022.
Just as the virus evolve and introduces new complications, so too must businesses evolve. As we look forward to 2022 in our planning, we must make allowances for further interruptions. This may equate to keeping much more cash on hand or ensuring business models adjust and adapt to accommodate changes in the work force.
As Plato said: “Necessity is the mother of invention”. New technologies that have been adopted to lessen the impact of Covid on business, such as the growth or home working technologies, have changed the way businesses work. This impacts other businesses too. One example is shared office space, networking hubs, and business office landlords in general. These are all highly sensitive to the circumstances we have experienced. As such businesses will need to adapt, else they may die.
Furthermore, we have already seen several large brands adopt different attitudes to staff working practices. Some declaring that nobody need be in the office for the foreseeable future, to others looking for a return to something close to pre-covid office attendance. This is sure to create a negative dynamic in many companies, especially where business owners need to foster close interworking that may have been a kingpin in supporting its brand persona or teams, placing even more pressure on perhaps a fragile business.
Job vacancies
With a record one million job vacancies reported in September, one might think this was a sign of business growth. However, there are also around one million people on furlough, many are young people too. However, it is highly unlikely that the two will just balance out or indeed if employees will still have jobs to go back to after the furlough ends.
Many industries have found that they now have a skills shortage, a lot to do with Brexit, but also as businesses shift their business models to adapt to new realities, people also need to adapt. For some, this may be problematic.
The reality is then, that businesses will likely struggle for some time due to staff shortages, just as the transportation sector is suffering currently.
Higher taxation
Business support for the past 18 months ultimately needs to be paid for. The chancellor unveiled plans to increase taxes on dividends and National Insurance by 1.25%. It may not seem a lot, but for businesses already squeezed by cash flow problems and directors who have probably not been paying themselves too well over the past year, this represents a further hit on cash flow and a reduction in income.
Planning for 2022
It’s clear that business owners, large or small, have much to consider and plan for in 2022. There are many unknowns, which of course makes planning very difficult. Ensuring your business is making best use of the financial resources available, tax efficient and is in good shape to take on the challenges of 2022 is where Tax Agility can help.
The team at Tax Agility in Richmond and Putney has many years of experience working with companies to help them structure and streamline their business to adapt to changes and to be resilient in coping with future challenges too. Our business consultancy service could be just what you need to close out the year and cement your plans for 2022, so contact us and discuss how we can help.