Coping with Financial Difficulties – Identifying Challenges and Solutions for Small to Medium-Sized Enterprises

In recent years, there have been many hurdles facing small to medium-sized enterprises (SMEs). Just when the Covid pandemic seemed to be tapering off, inflation and a recession hit and sent things spiralling sideways again. Let’s take a look at some financial challenges that are facing SMEs and some potential solutions.

What are the financial challenges facing UK SMEs?

Here are five challenges facing SMEs:

Repaying Coronavirus loans – These loans may have helped keep your small business afloat in troubling times, but repaying them can strain your finances. This is especially hard when battling rising inflation and a recession.

Retaining talent – With the job market as competitive as it is, employees are continually keeping an eye on vacancies. If your employees leave for a new company, offering competing counteroffers with a stretched budget can be hard.

Bad debts – Bad personal debts occur when invoices go unpaid. With a cost-of-living crisis, businesses will likely find this a more frequent occurrence. Businesses will need to decide whether to write them off or start the legal process of recovery.

Supply chain issues – As the effects of Covid roll on and the Ukraine-Russia war spreads its impact, it is apparent when looking at supply chains. Basic supplies in the food, construction and fuel industries have had a knock-on effect on businesses and customers alike.

Inflation and rising energy costs – Although the summer months are here, energy prices are still at a high rate, impacting businesses’ running costs and savings. Paying extra to keep the lights on will have an impact on other aspects of a business.

What are the key steps for SMEs to overcome these challenges?

While these problems may seem daunting, there are some things that you can do to keep your business secure.

1. Repaying Coronavirus loans – The Government has offered a Pay as you Grow option for their loans. This is where you can choose between taking a break on repayments for 6 months, extending the loan term, or only paying the interest accrued for 6 months. This could be beneficial while you work out a new budget and juggle your finances.
2. Retaining talent – If you have the budget to offer better salaries, this will work in your favour. If not, however, all is not lost. Think about other ways you can compensate your worker. In-house perks such as discounts on products or the ability to take a paid half day once per month will still attract jobseekers. It is best to keep on the right side of employment law, so make sure you have an expert team of lawyers on hand to guide you.

3. Bad debts – Having a robust contract or terms and conditions document for clients to read and sign is a good way to recover bad debts should they occur. It would also be prudent to have a plan of action for recovery in place. If you have already paid your VAT bill on outstanding debts, there is a process you can follow to reclaim this.
4. Supply chain issues – Securing new or alternative contracts for supply chains can be challenging in the current climate, but when you do, ensure your contract is watertight in case of any issues.
5. Inflation and rising energy costs – As with everything, the future is unknown. However, the price cap is being reduced by 17% from 1^st July. This breathing room will allow you to reassess your budget and look into switching suppliers.