Business environment and the challenges faced by businesses of any size have changed dramatically due to COVID-19. Whether it is a small owner managed business, a busy high street restaurant or an established corporate entity, uncertainty around demand, supply and the need to provide a safe working environment for employees, poses unprecedented challenge to a profitable business.
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Setting up the business right
Although setting up a new business can be challenging, as most businesses fail within its first year, it is in particular more difficult in the current economic circumstances. If you are looking to launch your venture into the business world and execute your long planned business plan, it is extremely important to consider the optimum timing for laying the first brick, based on political and economic climate, as well as any business restrictions, potential tax reliefs and support available from the national and local governments and from financial institutions.
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It is also important to carefully consider the different business models available to suit one’s aspiration and future plans. To keep compliance and filing requirements basic, Sole Trader may be an easy set up option as you will only be required to register with HMRC as a self employed individual and file one tax return per year thereon. Limited Company set up is one of the most advised set up providing you some reassurance in terms of personal liability as the company is limited by shares. This set up will also be beneficial for tax efficiency, as a split between salary, dividends and other available allowances can be controlled and monitored to ensure maximum after-tax profits. Other options include Limited Liability Partnerships and a holding company structures which has its own advantages based on one’s future plans. It is important to note that a suitable Small Business Accountant will be able to help you make the right decision at this critical stage.
Demand and Supply uncertainty
It has become extremely difficult to base your revenue forecasts as demand is not only linked with the changing consumer behaviour but also with the restrictions imposed by local Governments. Government policy and advice is changing on weekly basis which affects the demand directly as well as indirectly due to restrictions imposed on effectively delivering your products and services to your customers
It is equally difficult to manage supply chain in these challenging times due to national and international travel restrictions and safety concerns. Most businesses providing essential consumers products have seen tremendous increase in demand however it’s the supply of raw materials that has been the main issue, particular, because most of raw materials are imported from outside the United Kingdom.
A lot of businesses are therefore seeking to somewhat downsize to a manageable level as the support from the Government looks to be coming to an end to a reduced level where it’s more sustainable.
Working from Home
It is now clear that, where possible, working from home is the default position for many organisations with significant increase in using the likes of Zoom and Microsoft teams. Many organisations include the likes of RBS group already have their senior relationship teams working from home. With the significant cost per workstation in city centres, it not only makes financial sense but it also changes the worker management to be results based.
The difficulty arises for manufacturing and trading business whereas they are able to allow working from home for the admin staff however, factory floor, warehouse, logistics and delivery workers are to continue working on site. This is challenging in current climate in particular with the moral and legal duty to provide a safe working environment to the workers and with Government guidelines changing all the time, it is also extremely challenging to budget for the associated costs.
Routes to Market
It is now more important than ever to explore more direct routes to market and where possible direct to consumer, as supply chains become more challenging to manage. Many food and other essentials manufacturers are looking to set up online shops to sell directly to consumers using their existing delivery solutions and third party logistics. As consumers find it difficult to shop at supermarkets and manufacturers find it difficult to manage risks associated with distributors and wholesalers, it appears to be a natural route for both, supplier and the consumer.
Cash flow challenges
Working Capital becomes extremely difficult to manage at these times with existing debtors finding it difficult themselves and delaying payments. Some would be likely to pay their debts and bring accounts up to date after accessing Government backed CBILs; others are unfortunately likely to not survive due to sudden drop in demand and overall restrictions, in particular, restaurants, pubs and leisure businesses.
Although creating new revenue streams through direct routes to market are likely to bring increased sales, managing creditors at this point is challenging as cash flow is unlikely to allow making any major payments and suppliers are likely to make their payment terms strict with most credit insurers now reducing covers significantly to nil.
Recovery of Small Businesses
The recovery of economy and businesses, in particular small businesses will take some time as we edge deeper into global recession. Some businesses will recover sooner than others however most businesses will see the effects for a number of years. The recovery for most will depend on consumer behaviours as well as Government support and advice in the coming weeks, months and years.