In business, just like life, everything seems to come in waves…

For example, Germany’s economy recently shrunk by the largest rate since 2011, a recent temporary dip in oil prices resulted in weaker economic data for the markets, which in turn drove the selloff of commodities. On the domestic front, an average 5.1% increase in pay as against 9% increase inflation has left people with less disposable income, driving down spending. Inflationary cost measures coupled with a shortage of skilled labour, are having huge impacts to the automotive market. Not to mention the current weekly onslaught of pressure as we enter, what some experts are saying, is only the start of the current energy crises as a result of Russian sanctions. 

Where does this leave businesses and what does it all actually mean?

According to the Sunday Times – we are entering ‘Jobs Armageddon’ stating that business leaders are predicting a bloodbath as soaring energy prices threaten to shut down factories alongside other SME’s. The starkest estimates put the number of jobs at risk in hospitality, for example, at 500,000. This is all providing an increasing amount pressure on the government to offer more robust support.

Interestingly, when a person is swimming at sea and started getting hit by waves, the advice is; don’t fight it, as the turbulence lessens, push back up to the surface, grab a breath and deal with the next wave. So how do business owners in the SME market, manufacturing, hospitality and retail ride out the turbulence of the current wave and find room to breathe?

According to Ofgem there are several practical ways; agree a business energy payment plan to make payments more affordable (defer the debt), check business finance schemes and grants (there aren’t enough of them and they aren’t coming quick enough), get business debt advice (seems obvious), and then there is some direction towards the citizens advice bureau, which is no doubt a great resource to many, but perhaps not the lifeboat directors are looking for.

There are always other options, both informal and formal, and these can be pursued through a variety of approaches. Restructuring debt to make borrowing cheaper, perhaps that two year plan to exit your business via solvent sale becomes more relevant now with the help of corporate finance, leveraging assets to fund an increase in working capital, seeking rent holidays, compromise agreements with your current creditors via a restructuring plan or a company voluntary arrangement…the list goes on.

No one really wants to explore these options, but these are some of the ways in which business can get through the current turbulence. The advice for dealing with the metaphorical wave, is somewhat relevant; directors should not fight what is happening. It is better not to bury your head (full of fiduciary duties) in the proverbial sand, but rather plan ahead, make the best plan out of a challenging situation.

According to Scotland on Sunday, a quarter of Britain’s smaller businesses believe that energy bills will be unsustainable within the next year. A YouGov survey of 526 SMEs found that of the firms experiencing higher prices, 44% say they will not be able to sustain them for longer than 12 months. In the Telegraph on Monday, they reported that entrepreneurs have warned rising energy and food bills – and pressure on consumers’ budgets – pose a much greater threat to small businesses than enforced closures during the pandemic.

A parachute in the form of government backed ‘covid-style’ bailouts could be on the horizon. This would bring some much need breathing space. But the velocity in which the wave of challenges is hitting SME’s is frightening. Our view remains that adapting to survive is the only real option. Whilst this may not solve everyone’s problems immediately, it is moving towards a solution. After all, standing still seems as detrimental to business as moving in the wrong direction, we recommend reviewing your options now – and not waiting until tomorrow.