British mid-market businesses have six months in which to prepare for the looming recession and build resilience or be increasingly exposed to the risks of soaring inflation, rising interest rates, and contracting demand, a leading restructuring expert is warning.

“The Bank of England has warned that the UK will fall into recession* and contract throughout 2023 and there is an increasing volume of data and specialist opinion now beginning to underpin that forecast,” said Colin Haig, National Head of Restructuring at Azets, the Top 10 UK accounting and business advisory firm.

“It is going to get very tough for businesses and some sectors – such as those dependent on consumer demand – will be disproportionately affected,” said Colin Haig.

“A classic perfect storm is taking shape where the rising cost of borrowing and living will quickly impact negatively on consumer confidence and spending, and business confidence and spending will follow a similar trajectory.   

“However, unlike 2008 there is more time to prepare, and businesses have a window in which to review their costs, income, cash flow and overhaul their business plans.

“Our Resilience Toolkit is designed to be easily referenced by any business, large or small, and used to ensure it is preparing for the downturn reduce the risk of insolvency. As ever we would urge any business owner concerned about the next 18 months to seek advice as soon as possible.”

Financial Defence Toolkit

Pay off debt – Business loan rates are rising so pay off debt but ensure there is sufficient cash flow to run the business.

Unlock balance sheet value – Impose strict controls on money owed and on purchases to maximise cash flow. Communicate with customers who owe money and free up cash from excess inventories and sales of surplus assets.

Scrutinise operating costs – Cut or defer non-essential overheads that drain cash.

Cash flow projection – Have a short-term cash flow projection, normally 13 weeks and have discussions with your banks around additional facilities and the UK Government Recovery Loan Scheme.

Manage inventory carefully – Ensure the right amount of stock for ‘Just in Time’ ordering and avoid overstocking which ties up working capital.

Supply chain risk – Assess and monitor the risk of supplier insolvency with a thorough review of their financial profile.

Control growth – Focus on the best performing parts of the business do not use scarce resources to support weaker products or services.

Invest in your existing customers – It is much cheaper to keep a customer than recruit a new one – and then focus on ensuring they remain a customer and build their spending.

Review funding – A good relationship with the bank and other lenders is critical for working capital needs and the flexibility to weather any problems and to capitalise on opportunities.

Marketing investment – Avoid reducing marketing spend too drastically and ensure the business remains front-of-mind for customers and in a position to capitalise on the recovery.

Concluding, Colin Haig said: “It is important to remain optimistic. Recessions and downturns come and go but the majority of businesses will survive, and the majority of people will remain employed.

“The next 18 months will be extremely challenging for many, but there is time to put in place some key changes that will reduce the risks and ensure the business is ready to take advantage of an upturn.

“In any recession, there are winners and losers. There will be opportunities to acquire for prudent businesses who emerge from the current economic slump with a financial war chest intact.”

*A recession is normally defined by a contraction in Gross Domestic Product (GDP) for two successive three-month periods or quarters of negative growth.