No room for complacency

STEVEN LAW, business recovery partner at Ensors Chartered Accountants, warns that tougher times could lie ahead for businesses in 2011

LORD Young recently resigned after his “never had it so good” gaffe.

Whilst I would not wish to endorse his comments, looked at another way, it could be said that 2010 was a better year for business than many had expected.

This especially applies to many businesses in this region.

As predicted by many, the eastern region proved to be more robust than most in combating the impact of the recession and its after effects.

Agricultural businesses dominate our local economic landscape and that sector recorded one of the lowest failure rates during the recession.

Our regions service sector also coped better than some other regions, with the dominant insurance companies faring better than other similar businesses, such as banking.

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During 2010, business conditions improved for many, with evidence of customers looking to restock, low interest rates enabling all but the very highly geared businesses to service borrowings, and creditors such as banks and HM Revenue & Customs being largely supportive.

In fact, 2010 has seen a reduction in corporate insolvency by 13% compared with 2009.

But let’s not be complacent. 2011 promises to be much more challenging.

Some businesses which I am assisting are already experiencing more difficulty obtaining short term relief under the HMRC “Time to Pay” scheme, especially for repeat requests.

This will cause working capital difficulties for some businesses already at their overdraft limit.

There is bound to be an adverse impact on businesses reliant on public sector contracts, as the early impacts of the Comprehensive Spending Review take effect.

Also forthcoming VAT increases may have to be absorbed by some retailers and those in the leisure industry to continue to attract customers who will have less money in their pay packets after tax increases.

2011 is also likely to be the year when interest rates start to rise. This appears to be necessary to keep rising inflation at bay.

Businesses should therefore continue to plan in order to survive and remain ahead of the competition.

Planning to be less reliant on public sector contracts would seem sensible as well as looking for new, niche markets.

Working capital management will continue to be key with re-examination of credit control and stocking policies and forecasting funding requirements, all priorities.

My message is simple. Business conditions are likely to change for many in the forthcoming months. Plan forward to keep ahead of the game and take nothing for granted.