Third of UK SMEs to run out of cash by July

Research by Bibby Financial Services indicates significant knock-on effects for Irish SMEs

A third of UK SMEs will be unable to cover their costs by the end of July despite an unprecedented £330bn package of loans and guarantees from the Government, and this will cause significant implications and knock-on effects for Irish SMEs, according to the latest research from Bibby Financial Services (BFS). The new study of SMEs shows this number rising to more than half should the UK lockdown continue into the third quarter.

Despite the announcement of €1bn in liquidity measures for Irish SMEs affected by Covid-19 earlier this month, and similar measures introduced in the UK, the research reveals how businesses are already struggling due to the effects of the pandemic.

Almost two-fifths (39%) of UK SMEs have paused their operations entirely to minimise costs, and a further 38% have closed parts of their operations.

Bad debts are a common cashflow challenge for SMEs on both side of the Irish Sea, but the research indicates a quarter of UK SMEs have written off an average of £35k in bad debt since the beginning of February.

Even businesses without bad debt are facing significant cashflow problems, with the impact of Covid-19 trickling through the supply chain to SMEs. More than three-quarters (77%) have seen orders decline since the outbreak began, and almost a fifth (17%) have been forced to renegotiate contracts with customers and suppliers.

In an indication of the profound effect the virus has had on working practices, 47% of UK SMEs are now working entirely remotely. An additional 39% have a mix of employees working remotely and on business premises.

On a positive note, however, almost a third of UK SMEs (32%) believe they will start to grow again after lockdown measures are lifted or reduced.

Commenting on the research, Mark O’Rourke, Managing Director of Bibby Financial Services Ireland, said: “The UK and Irish SME sectors are closely linked, with many SMEs in both countries trading directly with one another. What happens in the UK has significant knock-on effects for Irish SMEs, and the research gives a stark warning that, in the midst of the current crisis, our small and medium-sized businesses are more exposed than ever to the damaging effects of bad debt and a lack of cashflow.

“Despite the severe challenges facing our society and economy at present, we’re continuing to do all we can to help SMEs cope with cashflow, working capital and currency issues to ensure businesses can get the support they require and continue to operate.”

The Bibby Financial Services COVID-19 Pulse survey is a poll of 500 SME owners taken from across the UK. Fieldwork for the survey ran from 2nd April – 14th April 2020. Research is conducted by Critical Research, one of the UK's leading independent market research companies.

29 April 2020

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