Many SMEs are in dire need of cash flow lifeline - Rashmi Dube

As the doors to the economy open further and debates ensue over the need for face coverings (a recent poll I took on Twitter indicated 53 per cent in favour of continuing to wear masks), businesses have a lot on their plates. One item that sticks out more than any other is cash flow. I can hear not so much as rumblings but anguished cries of pain, particularly from the SME sector, in respect of cash flow.

They kicked the can down the road in terms of VAT and, yes, the VAT holiday was much needed for most, however collection time is here. It wouldn’t be so bad if it was just the VAT, but we now also have the banks acting quickly and without remorse in pursuing businesses for their bounce back loans and also ensuring companies remain within their overdraft limits.

There seems to be no consideration of the fact that extending overdrafts would act as loosening the grip the bank has around the neck of businesses and would allow much-needed oxygen, enabling cash to flow with a little ease.

Where does this leave the SME which is in dire need of cash flow, the Achilles heel of any business irrespective of size?

As I review the landscape to see where we are heading, I desperately want businesses to thrive and to welcome with both arms the new norm (which hopefully by the end of the year we will just call the ‘norm’) of hybrid working conditions, greater emphasis on employee physical and mental wellbeing and greater moves to understanding Environmental, Social and Corporate Governance (ESG).

However, there lies within me a sense of trepidation, an uncertainty that lingers in the air. It’s the one we saw in November last year when we had a small taste of freedom then the door was firmly slammed shut in our faces. This time of course will be different, we hope. For one, most of the population is heading towards being double vaccinated.

But there are questions over the Delta variant and the new policy around holidays abroad – is it too soon? What people and business will not stomach further is another lockdown.

So, we head towards July 19 throwing what feels like all caution to the wind and let’s say it is business as usual. What does this mean? We are still negotiating trade deals, finding a way to work with Europe, resourcing labour and, on the horizon, seeing warnings of inflation.

The outgoing chief economist Andy Haldane, as a parting shot, warned that he expected that a surge in consumer prices would drive UK inflation close to 4 per cent this year whilst investors are concerned that the economy is being driven by fiscal policy rather than monetary considerations.

In short, no matter how open the economy is, the lack of cash flow for some businesses inexorably will veer them into administration or liquidation.

Businesses are tired of waiting to see what happens next and have felt a lack of control and hopelessness. So where is the light through this long and derelict tunnel? I believe it lies in the long term.

Short term we will see casualties, not everyone is going to survive which inevitably will cause a domino effect on other organisations such as banks/lenders who will simply tighten their grip further on businesses that are repaying their bounce back loans and other debts.

If we have learnt anything from Covid-19 and this pandemic, it is that nature sent us warnings, most of us just didn’t listen. What does nature have in store for our little island next?

I would have to defer to the experts and check my insurance policy. But for now, in most organisations, I would be focusing on “show me the money”.

Rashmi Dube is partner at Gunnercooke

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