Business news 11 January 2022

James Salmon, Operations Director.

Business failures are most likely during the first half of the year. Small businesses struggle to survive soaring UK energy prices. Just 20% of SMEs describe themselves as tech-savvy. Most small firms don’t understand ‘levelling up’.  And more business news.

Business failures are most likely during the first half of the year

Analysis by accountancy firm Azets of corporate insolvencies statistics collated by the Scottish Government from 2011 to 2021 found that over the period 4.22% more businesses folded in Scotland during the first six months of the year than the second.

Blair Milne, restructuring partner with Azets in Scotland, said financial pressures jump from January to June as bills from the preceding year start to accumulate in the first quarter. “Those businesses already struggling with cashflow, and working-capital problems will therefore be under severe financial pressure by the summer, if not before,” he added.

Concerning current risks, Milne stated: “Unfortunately, the ongoing Covid issues, operating restrictions, declining sales and waning consumer confidence are weighing heavily on many businesses, particularly in hospitality, retail, leisure and construction. The withdrawal of furlough and various government-backed loans, including the Coronavirus Business Interruption Loan Scheme and Bounce Back Loan Scheme, together with repayments now becoming due on such loans, will compound the pressures on businesses.”

Small businesses struggle to survive soaring UK energy prices

According to the Financial Times this morning small businesses are sounding the alarm over spiralling energy costs and industry experts fear this additional pressure will force many small firms to slash costs, let go of staff or “give up altogether”.

Just 20% of SMEs describe themselves as tech-savvy

NatWest’s Springboard to Recovery report shows that tech is more critical than ever to the success of an SME. However, research from a poll of 1,000 SMEs reveals only a fifth of smaller businesses describe themselves as tech-savvy, despite the potential boost to turnover that technology can bring.

NatWest’s report discovered that if SMEs use two or more technology “solutions or tools”, they benefit from an average of a 25% increase in productivity. Gordon Merrylees, chief commercial officer at Glasgow-based credit management platform Know-it, said: “The pandemic has been a make-or-break moment for small businesses – and those who more readily adopt innovative technologies come out on top. Due to how vital small businesses are to the UK economy, improving SMEs’ access to this new tech and giving them the support they need to adopt them will be crucial to future-proofing the UK economy and ensuring it recovers from the pandemic.”

Most small firms don’t understand ‘levelling up’

A survey by Nucleus Commercial Finance has found that over half of small businesses don’t know what levelling up the country means for their firm.

Chirag Shah, chief executive of Nucleus Commercial Finance, said: “Despite the levelling up agenda being a central idea of Boris Johnson’s Government, SME leaders remain confused about what this is and how it will impact their business. In addition, it’s particularly concerning that they feel regional inequalities are putting financial pressures on their business and are severely impacting their opportunities to succeed. As SMEs are the backbone of the economy and will play a crucial role in helping the UK recover from the impact of the pandemic, it is vital that the levelling up white paper provides clarity for them.”

Investment in online platforms pays off for retailers

Retail sales rose 2.1% in December compared with the same month last year and were 4.6% higher than in 2019, according to data compiled by KPMG and the British Retail Consortium. While this was a slowdown from the 5% rise in November, the figures suggested resilience in consumer spending. On a like-for-like basis UK retail sales grew by 0.6% in December compared with the previous year. As a result, for the whole of 2021 total sales grew by 9.9% compared with the previous year and were 6.6% higher than in 2019.

Helen Dickinson, chief executive of the BRC, said: “Retailers did well to weather the challenging trade conditions, with retail sales for 2021 up on both the previous year and compared to pre-pandemic levels. Continuing a trend throughout the pandemic towards online shopping, 2021 saw a double-digit rise in non-food online sales, a testament to retailers’ huge investments in their online platforms.” However, looking ahead, the BRC said soaring living costs could erode consumer spending power and weigh on retail sales.

Tory MP calls for wealth tax on overseas owners of UK properties

Conservative MP Kevin Hollinrake has suggested introducing a wealth tax on overseas owners of UK properties, arguing that the measure could be used to raise £5bn a year to help local people buy their first homes at reduced rates. Mr Hollinrake said during a Parliamentary debate that a 1% wealth tax on UK properties owned by non-resident foreign investors could potentially raise up to £5bn a year. “I would recommend that we put that £4bn or £5bn a year into the First Homes Programme, increasing the number of properties available to local, first-time buyers who are keen to get into the housing market,” he said. “That would ensure that those local people have a stake in our communities and are available for employers to do the very important work of making our communities sustainable.”

Council-backed energy company lines up administrators

Gas and electricity supplier Together Energy, which is 50%-owned by Warrington Borough Council, is lining up FRP Advisory to handle its looming insolvency, Sky News reports. The local authority is facing scrutiny over its decisions to put council taxpayers’ money at risk by backing Together and subsequently acquiring Bristol Energy, another council-owned supplier. The Times’ Patrick Hosking points out that turnaround experts at Alvarez & Marsal are on the case, but the chances of a rescue for Together are said to be remote. Warrington’s initial £18m investment has turned into a £52m liability. But shaky deals are not uncommon among England’s councils, Hosking continues, but the lack of transparency, accountability and scrutiny is a worry. He notes that Mazars, one of the biggest auditors of local councils, was last week fined £250,000 by the Financial Reporting Council for multiple failings in its audit of an unnamed council, including behaviour that could have led to a “material overvaluation” of a council asset.

Gove threatens developers who snub £4bn cladding costs
Housing developers saw their share prices fall on Monday after the Housing Secretary threatened to tax and fine those responsible for dangerous cladding if they do not voluntarily fix safety defects. Michael Gove told MPs that no leaseholder “will ever face the costs for fixing cladding” on buildings over 11 metres high.

London’s IPO outlook for 2022 uncertain

Research from EY reveals that London had a record number of listings last year, with 121 initial public offerings, raising £16.3bn – the highest level since 2007. “Last year was an exceptional year for the UK IPO market, with companies taking advantage of the open market to list in record numbers,” Scott McCubbin, EY’s UK IPO leader, said. “The outlook for 2022 is much less certain, with headwinds, including inflationary pressures, which are likely to lead to rate rises and a move towards bond markets with more attractive yields. Supply chain issues and weaker consumer spending due to energy price rises may lead to a weaker equity market later in the year.” Helen Pratten, an EY strategy and transactions partner added: “Markets have shown exceptional resilience against the uncertainty of the pandemic. However, whether this can continue as other adverse factors come into play is open to debate.”

SEC preparing tighter disclosure rules for private companies

The Securities and Exchange Commission in the US has begun work on a plan to require more large private companies to routinely disclose information about their finances and operations. The move comes amid concern about the lack of oversight of the private fundraising that has fuelled the rise of so-called unicorns—private companies valued at $1bn or more. “When they’re big firms, they can have a huge impact on thousands of people’s lives with absolutely no visibility for investors, employees and their unions, regulators, or the public,” said Democratic SEC Commissioner Allison Lee, who has called for the change. “I’m not interested in forcing medium- and small-sized companies into the reporting regime.”

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