Helping SMEs navigate the challenges ahead

There is not a single SME or freelancer that I’ve spoken to over the last month that has not felt intense disorientation and profound concern as they see their ventures rocked to the very core. 

Emerging from austerity, finding some balance after the bruising Brexit uncertainty and a general election, it looked like there might be calm water ahead. But 2020 brought us Covid-19 with its even greater societal turmoil, a fracturing economic outlook and the certainty that we will emerge blinking into the light of a new normal.

There is no going back. And then we will face the reality in January 2021 of being outside the EU. In this future, as ever some will thrive creatively seizing the moment, others will shutter too exhausted to continue, whilst many including millions newly out of work will need to re-invent themselves launching or pivoting into new careers. Some of which have yet to be invented.

But companies still have to navigate tomorrow and the next few months. Careful planning ahead is vital. Husbanding resources has to go hand-in-hand with thinking how you can emerge from this crisis focused on the new opportunities this changed world presents, with a new approach and adaptive business models.

Every company should have spent the last month drilling down into their accounts, seeing where savings can be made. This will have included negotiating rent/mortgage reductions or holidays, cancelling all but essential spend, furloughing staff on the government system.

For those trading as normal, a raft of simple tweaks can improve the cashflow position. Simple book-keeping practices such as lengthening payment terms, negotiating better inbound material/service pricing, and keeping on top of debtors who may have a less robust commercial outlook is key. Even looking for advance payments if in doubt. 

With the UK’s virus driven lockdown happening towards the end of the tax year, diligent companies will have had corporation tax savings stashed away. By using HMRC’s Time to Pay system, they can use this money to cover their immediate needs, but this just kicks that can further down the road. HMRC will expect – and need – these payments to support the government’s covid response.

Companies should view this as a ‘loan’ to themselves, not a ‘grant’. In paying their corporation tax incrementally over several months, they can get the benefit of having cash in the business, whilst still being seen to be reducing their outstanding tax by HMRC.

For those businesses with lower or no cash reserves, who may be trading less robustly, finding new revenues to shore up or pivot their offer is critical. As an innovation and growth expert, I have yet to find an enterprise – micro, small or medium – that cannot drive new, interesting revenues with their existing intellectual asset/IP base.

There are frequently easy wins that companies overlook because the board are working deep in the business, rather than on the business. It could be that these new offers become tomorrow’s main areas of growth.

Where companies have already been focusing on new business development, they may well be able to re-coup some of their spend through HMRC’s R&D tax credits.

R&D tax credits offer an elegant, streamlined system with clear guidelines on eligible spend. What is inspired about the model is that companies can gain credits whether their R&D work was successful or not.  

Many accountancy practices as well as R&D specialists offer advice or a recoupment service (for a percentage fee), but companies can apply direct to HMRC too gaining pre-approval for a project. This ensures they retain 100% of any successful claim.

I have seen a variety of companies be greatly surprised to receive a large repayment within 6-10 weeks of their claim being submitted to HMRC. Frequently this was re-invested in R&D, but in the current situation a re-imbursement of past spend could prove a lifeline. And is one that often gets overlooked.

Accountancy practices also have a role to play in supporting their clients navigate the new world we all face. I’ve always been surprised at the lack of pro-activity I see in this sector compared to others. 

As accountants – you see countless companies using different and inventive revenue models within your client base. Yet I have never come across a practice which offers their clients informed advice to understand and implement differing revenue models.

This is what your clients need now, more than ever. Not just defensive, cash-stashing advice but imaginative thinking to help them navigate the future.

Having been both a creative head and a financial director, new thinking and ways of working are second nature to me. My radar is always switched ‘on’. Over the years I’ve taken note every time I spotted a new revenue model. Or had adapted an existing model inventively. I’ve even come up with new systems to help clients. 

One day I was invited into a sizeable accountancy practice to discuss how I could help their SME support service. After some discussion, I asked the partner at the table whether they had a list of all the revenue models used by their clients, if they helped early phase ventures understand different ways they could bring in revenues or supported declining companies to re-energise revenues through new business models.

I was stunned to hear him admit that no, no such list existed. When I explained I had a list of 50+ revenue models which I used regularly, he asked for a copy.

To get through the turbulent times ahead, yes, the UK needs inventive companies that are prepared to work hard seizing opportunities, trying their hardest to navigate the uncertainty. We need an understanding HMRC that supports flexible payment models, rewards R&D and business development through EIS and SEIS too. But we also need imaginative and contributing advisors and accountancy practices who can help clients seize initiatives, using their undoubted wealth of experience to pro-actively build a new economic framework to help SMEs succeed. 

By Erica Wolfe-Murray, author of ‘Simple Tips, Smart Ideas : Build a Bigger, Better Business’

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