Jobs and cash flow on the line for small businesses

The Forum of Private Business (FPB) is advising small businesses to protect themselves against the consequences of the credit crunch, including an increase in job losses and delayed payments from bigger customers.

The latest business confidence survey carried out by financial specialist KPMG found that the number of firms intending to reduce staff numbers has almost doubled since the start of the year. The number planning to cut jobs has gone up from 29 per cent, in the first quarter of 2008, to 53 per cent. In addition, 52 per cent are planning to stop recruiting new staff in order to cut costs. The FPB has also experienced a marked increase in calls from members specifically related to redundancies.

“Recent figures have shown a huge rise in the number of tribunal claims. As redundancy is a major factor fuelling tribunal claims, this is likely to continue given the figures from KPMG, which indicate the likelihood that a lot more people will be made redundant in the coming months,” said the FPB’s Senior Member Services Representative, Philip Moody.

According to KPMG, almost 60 per cent of firms surveyed think they will continue to suffer for another one to two years. Close to 20 per cent of UK businesses fear the downturn could linger until 2013.

In a further study, KPMG asked companies with revenues ranging from £250m to more than £20bn how the credit crunch was affecting their management of working capital. In response, 49 per cent said they plan to negotiate longer supplier payment terms with smaller suppliers.

KPMG Advisory Director, Andrew Ashby, warned that this would make cash-flow problems even worse. “Adopting the same old blinkered approach of squeezing your suppliers and delaying payments is a zero sum game where only a few winners will emerge,” he said. “Companies need to be more focused on gaining improved visibility and control of cash, and to work smarter across the supply chain to create win-win opportunities that reduce the cash cycle for all participants.”

The study, which compared the impact of the credit crunch in the US and UK, found that 75 per cent of UK businesses are experiencing problems with late payment, compared to 23 per cent in the US. In addition, 75 per cent of UK businesses have reduced access to credit, compared to 14 per cent in the US, while 71 per cent of firms in the UK have seen the cost of credit rise, compared to 19 per cent in the US.

According to the research, although 96.4 per cent of businesses in the UK use some form of cash-flow forecasting, only 6.8 per cent say it is ultimately accurate.

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