Coming out of
Recession

As Britain emerges from the longest recession in post-war history, many of you will be breathing a sigh of relief. The future must be bright, mustn’t it?
 
The answer largely depends on the strength of your business and the sector it trades in. It is a well established fact that the eastern region has not fared as badly as some during the recession. Our region has a strong agricultural base, which has continued to perform well. However, certain sectors such as technology have suffered through lack of available funding.

2010 could be a good year for businesses that were well placed entering the recession and they will be able to take advantage of improving markets and the weakness of their competitors. 
 
Conversely, businesses with weak balance sheets and cash flows will continue to suffer and history has shown that more firms collapse on the way out of recession than during it. Figures from the 1980s and 1990s recessions show that the peak in both personal and corporate insolvencies occurred after the return to growth, in some cases, a considerable length of time afterwards. In the early 1990s recession the peak in corporate liquidations was recorded five quarters after the return to growth while the peak in personal insolvencies came six quarters (18 months) after.
 
It is therefore as important as ever to ensure you have a tight grip on your finances to ensure you continue to survive and, indeed, prosper. To assist you, please find below a list of measures that will act as a useful reminder on actions you can take.

  • Try to spread your customer base, so you are not reliant on a few customers;
  • Review credit control procedures to ensure that sales are converted to cash as soon as possible;
  • Build strong relationships with key stakeholders. Know that your main customers will continue to require your services or product. Know that your key suppliers are not going to let you down and know that your bank will continue to support when cash gets tight;
  • Review business operations and overheads and develop a robust business plan. Perhaps cash can be generated from the sale of redundant physical assets or stocks. A thorough review of overheads can reveal some important savings;
  • HMRC's Business Payments Support Service is still available, allowing businesses experiencing cashflow difficulties to defer most tax payments and a agree a payment plan. The service is easy to use, and you should contact it in advance of the due date for payment if you think you will have a problem. The service can be contacted on 0845 302 1435, with more detail available on www.hmrc.co.uk;
  • Register for VAT online, it’s faster and if you elect to pay by direct debit you get more time to pay. Visit www.hmrc.co.uk;
  • If you end up making losses then it may be possible to claim back some corporation tax or income tax for relating to the previous year. A temporary change in tax law also means that £50,000 of losses could be carried back up to three years, but careful planning will be required to enable you to take advantage of this. The sooner you are able to prepare accounts and quantify your losses, the sooner you will be able to get any refund, so act quickly!;
  • Unincorporated businesses will pay some of their income tax as up-front payments on account, based on their profits for the previous year. If profits are expected to fall, then these payments on account can be reduced, easing cashflow. You should also revisit any entitlement to tax credits;
  • Changes to tax rules could result in larger tax bills than in the past. Always ensure you have calculated your tax liabilities well in advance, so there aren't any nasty surprises;
  • If you need to incur capital expenditure on plant and machinery, then there may be a benefit in making sure you are buying items that qualify for enhanced capital allowances. Items on the "energy technology list" can qualify for 100% first year allowances; if you are making losses, then you may be able to surrender this part of the loss in exchange for a payable tax credit. You may even be able to get interest free loans from the carbon trust. Certain low emission cars also qualify for enhanced allowances;
  • Finally, if the worst happens and you find yourself in financial difficulty take early professional advice. With the right help you may be able to trade out of it.
For further advice please contact the Ensors Business Recovery Team or the Ensors Tax Team – as appropriate.