Article by Bev Budsworth MD of The Business Debt Advisor
As 2019 begins, the year ahead promises to bring new challenges for businesses across the UK but also new opportunities and chances for growth.
Brexit and Uncertainty
The UK is due to leave the European Union on March 29th this year and there is still a level of uncertainty surrounding how Brexit will affect businesses in this country.
According to a report by Liam McLaughlin, partner in EY published in April 2018 when there was some optimism that a transitional Brexit deal could be agreed, he forecast that the short term impact on financial services in the UK would be relatively minor.
However, the longer term forecasts at that point were much harder to predict due to any potential downturn in the economy caused by the macro-economics.
Eight months later, how is confidence in the SME community faring?
A report by Clydesdale and Yorkshire Banking Group (CYBG) found that while the health check indicators for business had remained broadly stable (by the third quarter of 2018), there had been a marked decline in SME confidence – down 23 points to 34, its lowest ever recording.
And this was before the government delayed the vote on the Withdrawal Agreement. To put this into context, the highest score was 87.3 in the fourth quarter of 2015.
The uncertainty and how this affects business confidence cannot be underestimated.
This is all despite there being growth of 0.6% in the UK economy, the fastest rate of growth since 2016.
Gavin Opperman, Group Customer Banking Director at CYBG, said: “The political and economic uncertainty driven by Brexit has sowed seeds of doubt and businesses have made it clear that they are unsure about what 2019 holds for them.”
Brexit No Deal and Recession?
Mark Carney, the governor of the Bank of England produced analysis in November 2018 which showed that “crashing out of the European Union with no deal could trigger a deep and damaging recession with worse consequences for the UK economy than the 2008 financial crisis”.
His forecast included, “GDP could fall by as much as 8% next year, exceeding the depth of the recession that followed the financial crisis in one of the worst-ever peacetime capitulations for the economy.”
However, the gloomy figures were criticised by respected economists Paul Krugman, a former winner of the Nobel prize in economics, and Andrew Sentance, a former member of the bank’s interest rate-setting committee, who said they were too severe.
The Bank defended their view, however, noting their belief that more than 50% of businesses have not planned for a No Deal Brexit.
According to the Bank’s analysis, house prices could fall by 30% and the unemployment rate could increase from its current level of 4.1% to about 7.5%. Interest rates could also be forced to rise as inflation increased to 6.5%.
The Confederation of British Industry (CBI) conducted a survey of more than 300 businesses and consultations to find out how they were planning for Brexit.
Some of the conclusions of this survey were:
- Companies are diverting time and resources to Brexit that could otherwise be dedicated to growth
- Brexit could impact every part of a single business and uncertainty about those effects makes getting ready a huge challenge
- Government and business need to work together to support small businesses preparing for Brexit in a way that protects jobs.
Optimism for 2019
It appears that optimism in the UK is currently in short supply.
Brexit will provide opportunities to industries such as pension transfers for the advisors that get the advice right.
In the financial sector, confidence about investment in UK equities remains bullish, according to a survey by Redmayne Bentley where respondents felt that UK equities were undervalued.
Companies are also pushing ahead with efforts to become increasingly “data driven”. According to a report by Tom Davenport for Forbes, 2019 will see further developments and interest in Auto Machine Learning “AML”, Robotic Process Automation, and Blockchain Solutions – particularly in Healthcare, concentrating on protecting patient data and electronic records.
Cloud computing will continue to develop with global organisations increasingly moving 100% of their computing architecture to the cloud.
That’s no surprise, considering that the latest McAfee’s lab reports found malware exploiting software vulnerabilities grew by 151% in the 2nd quarter of 2018. This presents opportunities for developing AI/machine learning to detect and resolve the malware attacks.
The world of data analytics is becoming more accessible to all types of business, allowing them to access and analyse data more easily to ensure marketing is targeted accurately.
Rana el Kaliouby, CEO and co-founder of Affectiva predicts in an article By The Next Web that 2019 will be the year of the new social contract between people and AI.
He said: “Our relationship with technology is changing, from the way we interact with virtual assistants like Alexa or Siri at home, to the way we work alongside AI, across industries spanning healthcare, automotive, advertising, recruitment, and many others.
“This requires an entirely new mentality around the relationship between people and AI.
“AI will only have a future if it is built with an ability to understand all things human – including people’s emotions, cognitive states and the like – and respond accordingly, showing understanding and empathy.”
SME’S ability to compete
Brexit and a potential downturn in the economy pose very great threats to SME businesses that are not “on it”.
Business owners need to make sure every aspect of their business is functioning efficiently, as well as ensuring they are more data driven in terms of collating, analysing, using and protecting the data their businesses deal with on a daily basis.
Insolvency numbers are starting to increase from a low of just over 15,000 in 2015 to 17,324 in 2017 with figures for 2018 tracking at a similar level. These figures are still thankfully down on the high of total corporate insolvencies of 25,633 in 2009.
Small businesses make up the overwhelming majority of those operating within the UK, and they play a fundamental role in our economy. The uncertainty the UK will face over the coming years is likely to see some of these businesses stumble, and possibly fail.
However, failure is not inevitable, and there are a number of steps that businesses can take in order to reduce their risk which are detailed in the Business Survival Checklist developed by The Business Debt Advisor team.
There is always a solution
We have a decent rescue culture in the UK which can include voluntary arrangements for both businesses and individuals.
If your business is struggling, it may be capable of being rescued with a CVA which would allow your company to pay its debt back in affordable monthly instalments over a period of 3 to 5 years.
If your business is not viable, it can be wound up. You could start again with a new company or operate as self employed. If the winding up of the business leaves you with personal debt, this could be dealt with by an Individual Voluntary Arrangement (IVA) which will let you pay back your debt again in monthly instalments.
Taking steps to wind up your company does need careful consideration. Call our team on 0333 9999 689 or email us at firstname.lastname@example.org.
The Business Debt Advisor is a trading division of The Debt Advisor Ltd which is authorised and regulated by The Financial Conduct Authority number 659920. Beverley Budsworth is the MD and is also an Insolvency Practitioner regulated by The Insolvency Practitioners Association.