With Liz Truss’ government looking to kickstart the economy through low taxes and deregulation, City A.M. sat down with the head of a fintech tax credit specialist, to find out how businesses can overcome challenges.
Co-Founder and Director at Adsum, Freddie Digby, spoke at length about the challenges facing UK businesses at present, and while the government can help, really, digital transformation is the required remedy.
So, why are businesses struggling at the moment?
Unfortunately, businesses have been hit with a raft of obstacles in quick succession, all of which are harming performance and profitability. As a result, organisations are fighting on multiple fronts to try and manage costs, which is proving to be a losing battle for many, especially SMEs.
There is a potential recession on the horizon, which spells trouble for businesses across all sectors. The 2008 financial crash resulted in the closure of over 800,000 UK companies – ominous reading for organisations bracing themselves for what is to come. Expect to see operating costs rise significantly, as suppliers increase prices in order to compensate for their own financial struggles. Couple this with a contraction in demand due to falling consumer confidence and it is clear to see why the future looks bleak for UK businesses at the moment.
Businesses also have an energy crisis to contend with: costs have increased drastically, with further hikes inevitable before the end of the year. Businesses whose cashflow is already under pressure could see balance sheets plunged into the red due to skyrocketing energy bills.
With Liz Truss recently announced as Britain’s PM, business leaders will hope that this new era of leadership can provide some solutions to the issues plaguing their companies. However, it’s a possibility that the cost of business has grown so extreme that organisations cannot wait around for help to arrive. Support is urgently required now.
How can organisations manage cashflow during a downturn?
Businesses should not underestimate the role that Alt-Fi businesses have to play in keeping cashflow positive. There are a number of innovative fintech players, whose business proposition revolves around maintaining liquidity for their clients.
For example, fintechs have developed technology that can calculate the money owed to a business by HMRC (such as tax credits or VAT refunds), and they will then provide timely access to these funds, which would otherwise take months to arrive. Receiving this money earlier than expected and clearly understanding how much the business is entitled to will allow firms to factor this cash into financial forecasts and help them plan for any obstacles ahead.
Another helpful solution is automated invoicing, which collects invoices on behalf of a business, guaranteeing that they will receive every penny they are entitled to without any unexpected hiccups.
Such solutions can also benefit businesses when the economy begins to recover, providing funds that they can put towards expansion plans. The bottom line is that proactivity is always rewarded, and businesses exploring fintech offerings to bolster cashflow will reap the benefits of this and remove some of the pressure off its cashflow.
Any advice for coping with the energy crisis?
There’s no hiding from the fact that the energy crisis represents a serious threat to profitability, but there are a number of easily actionable steps businesses can take to decrease consumption and at least partially offset cost increases.
Artificial Intelligence (AI) and Machine Learning (ML) are highly effective ways of optimising energy usage. This tech pinpoints inefficiencies in energy consumption, meaning businesses can identify key areas they can target to limit fuel expenditure.
Many businesses already benefit from IoT devices such as smart thermostats and lighting systems to monitor real-time consumption. Still, businesses should be more progressive with this technology to maximise its benefits.
Large buildings can use IoT sensors and smart software to monitor temperature and movement throughout the site, with businesses more effectively scheduling staff off the back of this new real-time information. Utilising technology like this and intelligently applying the data it provides holds the key to shaving zeros from monthly bills.
With so much economic uncertainty, should businesses be investing in new tech?
It may seem counterintuitive, but businesses putting cash aside for tech to lower costs is a shrewd strategy that will help weather the storm that lies ahead. Digital transformation incurs an initial cost, but this becomes worthwhile if profitability improves in the long-run.
Besides, the enormity of the current crisis means that businesses will not have long to wait before their expenditure yields a return. Energy prices are rising so sharply that any new tech to reduce consumption will have an instant and very noticeable effect on costs.
In times of economic strife, proactivity is key, and businesses who refuse to rest on their laurels and seek innovative solutions to the troubles facing them will emerge in a far better place than counterparts who have resigned themselves to failure.