May 29, 2024

Out of the doldrums: Strategies to support SMEs as the economy recovers

It appears 2024 may not be the doom-and-gloom year some economists expected. UK inflation fell to 3.2% in March[1] and interest rate cuts are on the horizon.

Across the UK, business confidence remained at 42% in March, matching the highest level recorded last year, according to Lloyds’ Business Barometer[2]. London’s business confidence rose 14 points to 52%, and Yorkshire and the North East recorded even higher levels of confidence than the capital. However, improvements aren’t being seen everywhere. The Midlands recorded a sharp fall.

While there are a few headwinds (such as increases in the minimum wage and political uncertainty) I believe there’s plenty for SMEs to feel positive about: reduced concerns about supply chain disruption, a less constrained labour market and finally a lid on inflation – all great news for building firms, pubs, manufacturers, restaurants, farmers and many other sectors dominated by SMEs.

Here are my top 5 tips on how accountants can help firms make the best of the rejuvenating economic landscape in the months ahead.

1. Planning for growth

The primary role of any good accountant is to be a critical friend. Accountants should be using current or live data (and experience) to advise clients on their growth strategy. It’s not enough to simply shine a light on historic levels of sales and margins.

Whether it is locking in prices for key materials, forecasting recruitment requirements, moving into new locations or markets, or determining the optimal level of pricing, real time data is essential for decision making.  Accountants are key not only to this information being delivered and accurate, but also assisting often lonely entrepreneurs to translate it into action.

2. Driving efficiency

So, it might not be the most exciting part of running a business, but efficient processes are the bedrock of all successful enterprises.  For example, in service industries, such as hospitality, mapping staffing requirements to customer demand is essential.   A good accountant can set out key performance indicators tailored to the industry – in this case revenue per hour of staff time.   This could shine a light on optimal shift patterns.

Looking through key business processes may also result in automation, customer self service and so on – essential to support the bottom line in a competitive market.

3.Making the most of tax changes

The landscape has settled in terms of corporation tax since the main rate went up from 19% to 25% on 1 April 2023. Accountants should advise SME clients to plan for the cashflow impact, but also ensure they are making the most of the available reliefs. For example, the introduction of full expensing for capital expenditure.  This, or the £1m Annual Investment Allowance, could be a significant benefit to smaller businesses.

Consider also the use of pensions in property ownership, R&D tax credits and so on.   Early engagement with an accountant can significantly reduce the cost of investment.  Very little can be done after the investment is made.

4. Managing cashflow

Accountants can and should play an active role in helping clients to manage their cashflows.  For smaller businesses, even a small reduction in debtor days can make a substantial difference – providing the cashflow to support growth.  Helping clients work through their cash management processes is a good starting point.

Even simple ideas – service businesses, such as dentists, might take part payment on booking an appointment, helping clients to set up direct debit schemes, moving to daily invoicing, can be a massive help.   Cashflow is perhaps the most important business process there is – accountants should ensure clients give it the attention it requires, and even consider outsourcing their credit control.

5. Funding for growth

Finding funding to support growth remains a prominent issue for smaller businesses. The big high street banks can feel impenetrable without the right support. Lenders will struggle to provide support without high quality management information, including forecasts of profitability and cashflow.

It’s not easy to understand why earnings before interest, taxes, depreciation, and amortisation (EBITDA) is an important metric, or how debt covenants might be calculated.  Good accountants can help with that. Great accountants will have in-house specialists who can use their network to access a range of funding solutions, often at a lower cost or on preferential terms.

As an alternative, The British Business Bank[3], which is the government’s economic development agency, has now released a new £1.6 billion round of debt and equity funding for businesses based outside London and the southeast.

Meanwhile, the Growth Guarantee Scheme – a government initiative designed to help businesses affected by the Covid-19 pandemic to secure financial support from banks and other lenders – has been extended until the end of March 2026. Getting solid advice and financial projections from their accountants, UK businesses are in a strong position to benefit from both these schemes.

Things can only get better…

As we progress into the 2024/25 tax year, there is plenty for SMEs to feel uplifted about. I encourage SMEs to capitalise on this increasingly favourable environment for expansion and diversification.

As small businesses grow and succeed, they create a ripple effect throughout the national economy, generating additional employment opportunities, increasing consumer spending, and fostering a positive business environment for all stakeholders.

I like this quote from writer Nicole Snow: “A small business is an amazing way to serve and leave an impact on the world you live in.” I would add that the economic influence of SMEs is significantly bolstered when they have skilled accountants at their side.




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