Recession looming, what will it mean for your business?
The growth outlook for the UK has deteriorated. Over 2022, PWC expect UK GDP growth to average between 3.1% and 3.6%, followed by two years of slow, or even negative, GDP growth. The PWC model predicts the UK to enter a recession as early as this year. This is largely due to surges in inflation as the cost of living crisis impacts all demographic groups.
What is a recession?
A recession refers to a period of economic downturn, usually defined by two consecutive quarters of negative economic growth when adjusted for a country’s real GDP. Most recessions only last for a few months, although some may take years to turn around.
Indicators might include:
- Job losses
- Manufacturing slowdown
- Decline in consumer spending
- Decline in real income
Impact on business
As recession hits, consumers become wary when it comes to spending. Therefore your business might find it more difficult to keep up with its usual sales and you may need to cut costs accordingly.
Lenders tighten their belts as well, making it more difficult for businesses to access usual lines of credit. Interest rates will increase and lending requirements become more strict.
Reduction in cash flow
Customers find it more difficult to make timely payments during a global recession. Businesses might need to spend more time chasing invoices and delay their own payments to suppliers.
Declining share prices and dividends
The reduction in cash flow and profit eventually makes its way to your business’s financial statements. Dividends may also decline.
The upside of recession
A recession gives businesses the chance to reinvent themselves by looking at innovative ways to cut costs. You might decide to try a new business model with lower associated costs to protect your interests. Competition may also be reduced as some businesses are unable to remain open.
What can you do to weather the recession?
So how can you take advantage of the positives and avoid falling by the wayside as a recession casualty?
Don’t wait until the middle of a recession to look at your budget. This should be carried out on an ongoing basis ensuring you have a safety net so you can avoid employee redundancies and a decline in output quality. A cash flow forecast can help you predict future financing needs.
If you have any questions or need help with financial scenario planning, please get in touch with your Swindells’ partner who will be able to advise you further.
The Chancellor announces the Autumn Statement. What does it mean for you?
The Chancellor Jeremy Hunt, has presented his Autumn Statement which he says is focused on growing the economy through reducing debt, cutting taxes and rewarding work. He stated that, ‘Our plan for the British economy is working, but the work is not done.’ This article will provide a summary of the measures announced. Do look out for a full report that will be sent to our newsletter subscribers in the coming days.
A guide to capital gains tax exemptions and the family home
A valuable relief exists on the sale of the family home, but in certain situations careful planning is required to ensure that the relief is obtained. The capital gains tax (CGT) exemption for gains made on the sale of your home is one of the most valuable reliefs from which many people benefit during their lifetime. In this article we look at the operation of the relief and consider factors that may cause it to be restricted.
Sign up to receive our private content
straight to your inbox