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How concerned are business leaders and finance professionals about the gathering economic storms? Lawrie Holmes takes the temperature of a number on the front line.

The next few months or even couple of years promise to be very tough for UK businesses. That’s what the headlines are telling us, and recent data suggests that a recession may have already started.

In June, the number of UK corporate insolvencies exceeded 1,600, according to the Insolvency Service, while profit warnings were up 66% in the first half of 2022.

View on the ground

From AAT members there are a wide set of concerns around how the growing economic uncertainty is affecting their businesses or clients.

For 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 on talent’ when trying to recruit new staff. Salaries are increasingly competitive and lots of companies need the same candidate.”

Farha Jamadar FMAAT, finance manager of timber door supplier Todd Doors, describes the onset of the hardening economic situation as “sudden”. She says: “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.”

Clare Elliott FMAAT, CFO of IT support and consultancy services provider ILUX, says her firm’s biggest challenge in the current economic situation is balancing rising costs with increases to clients.

She says 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,”

Alasdair McGill FMAAT, founder of accountancy firm Ashton McGill, says there are constants in conversations with clients: “People are concerned about energy costs, but are also concerned about the cost-of-living crisis. The main discussion we’re having is making sure that people are considering their business models. Where are the opportunities in the crisis?” 

Forecasting vital in recession

Despite the doom and gloom, corporate leaders and finance professionals are seeking ways their organisations can mitigate the oncoming challenges.

Becky Glover points to the role of effective forecasting. “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 that we are in the strongest possible place,” she adds. 

Clare Elliott is in agreement: “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,” she says. “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,” she adds.

Elliott says rising costs are a cause for concern. “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.” 

But there is also cautious optimism from her. “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,” says Elliott.

Becky Glover FMAAT says the war for talent has intensified

David Nunn is a former Content Manager at AAT.