Many of our clients and contacts remain concerned about further disruptions to supply chains, both through secondary outbreaks and also due to cashflow issues in the supply chain resulting in business failures and stock shortages. Companies are trying to mitigate this through diversification of suppliers and geographical origins of supplies, but for specialist products this is difficult as it is where longer-term contracts are in place.
The presidential change in the US might lead to better stability in international trade with many believing that Joe Biden will result in a more stable relationship between the US and the rest of the world, leading to fewer tariffs and trade wars and help to stimulate international trade. However, any change in leadership comes with change and uncertainty, which, for the UK, is even more emphasised as we have yet to reach a deal regarding Brexit.
As we come out of the pandemic, business will need certainty and support, today’s announcement regarding the extension of the £1 million Annual Investment Allowance will help for smaller businesses. However, more will be required for the larger businesses and hopefully the government will not be too quick to raise taxes to pay for the pandemic as this could be the final straw for some.
Working capital management remains a concern across the sector, especially the collection of payments from customers and stock management. Companies are trying to balance holding enough stock to cope with disruption, with the cost of cash being tied up in stock and needing the cash to pay suppliers and employees. So far most companies are supporting others by ensuring payments are not delated but as government support packages across the globe start to end, companies may come under pressure to manage cash by slowing down supplier payments.
The extension of the Coronavirus Job Retention Scheme (CJRS) from the government was welcomed and will help some facing the challenges to the sector.
Practical issues with dealing with the post lockdown climate in different countries, understanding the rules across borders, obtaining enough and the correct PPE are all non-financial concerns facing international businesses. The news of a vaccine has come as a great relief but in reality, it will probably be at least another 12 months of disruption to business until this has got things back to a pre-pandemic normal.
Obtaining employees from overseas and dealing with issues such as quarantines are also issues continuing to hinder certain sectors including food producers.
In addition to COVID-19, the impact of tariff changes caused by trade wars and Brexit also weigh heavy on those running international businesses.
Over the next three to six months there will be continued disruption in terms of supply chains and also transportation links as outbreaks flare up and ‘local’ lockdowns are put in place. This could impact upon the supply of goods from and through those areas. Components that are produced in those areas not being shipped could result in problems across supply chains and manufacturing processes.
Lead times are also likely to increase due to social distancing and other methods at factories.
To counter the issues technology will need to be continually monitored and improved to ensure companies have the ‘best of breed’ to enable them to capitalise on opportunities as the economy starts to recover and will also provide protection if the virus alters or new viruses emerge resulting in future pandemics. Different forms of communication such as video conferencing will continue to dominate as many have seen the advantages of these forms of communicating compared to face to face meetings, for example through time saved by not travelling. The UK has invested in the technology sector and could be set to benefit in the coming months and years.
Cash will become tighter as government support packages are withdrawn and loan repayments start. To kick start growth, businesses need governments across the word to promote global trade and investment. In addition, they need to take steps to keep trade flowing by reducing red tape, particularly in relation to tariffs, customs and border controls. The UK is currently one of the most attractive destinations for investment in EU with over 1,100 inbound investments in 2019, more than Germany and Italy combined and that represents an increase of 5% despite challenging times. Our government should build on this to ensure a rapid increase in trade back to pre COVID-19 levels taking advantage of Brexit and what we have learned from the pandemic.
Free trade agreements will play a critical role in our recovery and how these progress will have a major impact on how successful businesses will be.
We can help at this critical time with the production of cashflow forecasts and business models, which need to be regularly monitored and updated as the situation changes. This is key to managing cash and therefore, essential for the survival of most businesses.
We can also help with finding additional funding to finance the business and increased working capital requirements. Linking in with the above, a professional firm helping with applications and forecasts can add real credibility. This can both speed up applications and make them more likely to be successful as finance providers will gain more comfort if professional advisors are involved.
For some there will be opportunities to merge or acquire businesses at lower prices than pre-COVID, our Corporate Finance team can support with due diligence and transactional support.
We have a Global Mobility team who can help with global mobility and ensuring companies have access to the right employees at the right time.
Our VAT and Customs Duty team can help with tariffs and are currently very busy dealing with Brexit and keeping our Brexit hub up- to-date.
Tax advice should also be sought to ensure any changes in structuring is efficient and is correctly budgeted for. Tax rates are likely to change in the longer term in order to pay for government support therefore tax planning will also be key to mitigate the costs to businesses in the future.
The next 12 months are likely to be as challenging and the past 12 months and businesses will need to keep on top of events as they develop and ensure that they can take advantage of any support or tax reliefs provided.
For more information, contact Darren Rigden or you usual Crowe contact