Many small firms are caught in a dilemma. If the economy dips again, they will struggle to grow sales, get paid on time and keep trading. Yet if the economy recovers, their chance of failure actually increases. More firms fail coming out of recession than going into it as working capital is stretched to breaking point.
Paul Stobart is better informed than most about this. As managing director of Sage, the software and services group that helps businesses to manage their finances, he sees thousands of small firms trying to decide whether to plan for growth or slump.
“The level of uncertainty is making life hard for small firms, which are asking: are we in recovery or facing a double dip? They don’t know if their banks will be there for them and added to that is the uncertainty about the election.”
Many are also dealing with the effects of the recession, said Stobart. “About 50% suffered late payments last year and it is probably a similar picture today. They are still caught in the middle between supplier pressure for payment and customers paying late.”
Their plight is reflected in the volume of calls to Sage’s advice lines, said Stobart. “We are getting 10,000 calls a month from small firms and they are asking about cashflow forecasts and how to put their figures in the right light for the bank manager. Cash is a big concern for them still.”
Given the uncertain outlook, being flexible is key, said Clive Lewis at the Institute of Chartered Accountants in England and Wales. “Being able to handle a 5% increase in business followed by a sudden 10% dip will be the way to survive,” he said.
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