Insolvencies could cause shockwaves through the small business community

Following news that insolvencies have increased by a fifth year-on-year in November 2022, small businesses finance expert, Lee Murphy, managing director at The Accountancy Partnership, is warning entrepreneurs to keep a close eye on their cashflow as they head into the new year.

“A perfect storm of rising energy costs, low customer demand and untimely strikes are squeezing small businesses to their limits. What should be a popular sales period for many businesses is proving to be challenging as the public have less money to spend due to the cost-of-living crisis. SMEs are facing higher running costs which is also making margins smaller.

“With less sales and smaller margins, it’s easy to see how businesses can become suddenly insolvent. Managing cash flow and keeping an eye on what is coming in and out might make the difference between survival and shutting up shop this year.

“Small businesses that don’t have much in reserve should shop around for credit, especially as interest rates rise further. Try not to rely on short term credit which comes at a higher cost. Also, try and anticipate when money is owed and expected to come in to prevent leaving yourself short. Bookkeeping software can be a great help as it will automate most of this process, removing the admin for the busy business owner.

Insolvencies can cause shockwaves through the small business community

“SME insolvencies could cause a domino effect through a small business community as they owe other businesses money which can no longer be paid. This puts other unsuspecting entrepreneurs in a precarious position and can even push them over the brink too.

“Entrepreneurs should also be alert to the performance of their partners during difficult times. Regional or industry-specific SME networks could experience an insolvency chain reaction if they are less resilient to cope with unpaid debts. The impact in sectors such as hospitality and retail could be devastating.”

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The Accountancy Partnership

The Accountancy Partnership provides accounting, tax and payroll services.

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