How members are planning to stay afloat in the recession

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AAT members are staying strong in the face of the coming business challenges.

Chancellor Jeremy Hunt’s Autumn Statement was designed to rein in inflation and restore financial stability by raising £25 billion in stealth taxes and cutting £30 billion in public spending.

Repairing financial credibility has also come at a cost to confidence.

Britain is facing the sharpest fall in living standards for generations, and the Chancellor confirmed the UK is now in a recession that is expected to last until 2024.

That’s on top of an already bad situation: by August this year, there were already 600,000 businesses in significant financial distress. Sectors with the highest numbers of critically distressed businesses included construction, support services, real estate, general retailers and automotive.

Usually, around 5,000 businesses go bust each quarter in a recession, however some experts predict there will be more due to catch-up from Covid-19.

Here’s what accountants are saying about the oncoming storm.

Clients could delay projects – but new businesses will also be born

Clare Elliott FMAAT, CFO of IT support and consultancy services provider ILUX

Our biggest challenge in the current economic situation is balancing rising costs with increases to clients.

It is incredibly difficult to increase sales prices as clients want justification beyond the standard reason of rising costs. They are experiencing huge rising costs across all of their overheads, and they are trying to keep control of those that they can.

I fear prices could spiral further out of control, to the point where clients want to delay projects. This will impact our short-term income, but more importantly it will make it more costly to support the client if they are unwilling to update their technology. This is something that we need to be cautious about, as that type of income is not guaranteed for us.

Forecasting and planning are key. That’s in terms of sales revenue, profits generated on the type of sales revenue expected, and most importantly cash flow expectations. Once these are known then we can predict costs, employee requirements, and demands on cash flows at specific points in time. And if cash flow is stretched at any point, then we can plan to cover that period with some external funding.

While many businesses will suffer and some will be lost to the recession, more businesses will be born, because the reality is that business will always go on, and providing we can stay one step ahead, we can help to recession-proof our own business.

Verdict: stay on top of forecasting.

We recruit the best engineers, but they are now at a premium

Becky Glover FMAAT, Finance Director of vehicle telematics software provider VNC Automotive and Co-Founder of Elizabeth Rose Wines

Uncertainty is all around us at the moment. We are very aware that we need to constantly re-forecast our costs because everything is changing so quickly.

Our biggest cost has always been staff as we recruit the very best software engineers in and around Cambridge. Recently, we’ve seen the ‘war for talent’ when trying to recruit new staff. Salaries are increasingly competitive and lots of companies need the same candidate.

It’s important to be aware of what’s happening to ensure you understand how this will affect your business. We do a lot of global business, so it’s important for me to understand what is going on in the UK, and our biggest markets – Asia and North America.

We are forecasting regularly with any new information we have, to ensure we have as much knowledge as possible. We are still looking to the future to make sure that when we come out of this downturn we are in the strongest possible place.

Verdict: watch recruitment and constantly reforecast. Focus on how we want to exit the recession.

Unemployment won’t rise dramatically

Ricardo Reis, Professor of Economics at the London School of Economics

Dramatic increases in the costs of energy, high inflation and a tight labour supply mean 2023 is a concern, though the outlook for 2024 is more optimistic.

Fortunately, the UK’s historically low unemployment rate bodes well. Even an increase by two to four percentage points would still mean only going back to the unemployment rate we had in 2012-13, hardly a catastrophic time in the history of the UK economy.

Verdict: unemployment could return to 2012 levels.

The sudden hardening of the economic situation requires resilience

Farha Jamadar FMAAT, Finance Manager of timber door supplier Todd Doors

Being in the retail and construction industry, we had a great start to the year and pegged this to be our year of recovery with supply issues being sorted and the world getting back to normal. But in the last few weeks, things have dialled back a bit more. Everything is being reviewed to prepare us for the worst case.

While this is a morbid spin on things, I think we forget our resilience – it’s all about pivoting and being more mindful and planning for contingencies and utilising opportunities.

Verdict: look for ways to pivot. Remember how resilient we are.

Annie Makoff is a freelance journalist and editor.

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