Number of SMEs going under set to increase

Dither and delay is often a sign of a lack of ability to pay. Unfortunately, this appears to be the experience of our corporate clients. We are increasingly being approached about breaches of contract and interpretation of break clauses in contracts, which is a clear sign that many companies are feeling the strain. We have also seen the number of legal challenges regarding so called penalty clauses increasing in an attempt to save money. The number of legal challenges are often a good indication for how businesses are faring as businesses that are feeling the strain often need to resort to litigation to protect their income or to reduce their expenditure. In fair financial climes, companies have the ability to settle bills on time or to see out contracts.

The company directors we work with are currently managing to weather the inflationary storms and on the whole their companies are financially robust with good cash reserves. However, they do see the UK entering into a recession later this year. If anything this has made them want to increase their savings and pension contributions rather than reduce them, and if necessary cut back on other expenditure. Their investments are their Plan B in case their business suffers and an eventual exit becomes more difficult to achieve in the future. Bear in mind that corporate taxes and dividend taxes are all heading significantly higher as the UK faces its heaviest tax burden in three generations. Pension contributions are still the best way to extract money from the company tax efficiently and reduce corporate tax liabilities."

The small businesses owners I've spoken to are battening down the hatches. With staff wages and input costs rising and recession on the horizon, they're understandably wary of making any financial commitments in the short term. The old adage that business owners get paid last feels apt at the moment, with pension contributions and personal finances being put on the back burner for the time being.

Fortunately, we have not had any of our business owner clients contact us in distress as yet. However, if any were to do so, we would need to ascertain how serious the problem really was, which might involve talking to their accountant. In the most serious of cases, we would probably advise that the business owner stops making pension contributions until the situation eases. We would then regularly check in with that client to ensure that they do not stop the contributions for any longer than necessary, as this can damage their long-term financial plans. Where it can be demonstrated that the concerns are not justified, we would encourage the client to stay on track and keep making the contributions.

In times of hardship, it is vital to maintain essentials while knowing that luxuries can be deferred. Pension savings are for the future while bills and insurances are for today. You can plan for and restart savings but you can't do much if things go wrong. It is therefore vital to maintain existing safety nets so that you and you family don't regress further should the worst happen."