The UK is expected to suffer its worst recession on record this year, according to the Bank of England, with the economy shrinking by 14%. An economic contraction of this scale has far-reaching implications for businesses, which are already wrestling with the significant financial, operational, and safety challenges posed by COVID-19.
In a recent videoconference, members of the Association of International Certified Professional Accountants’ UK regional advisory panel of finance leaders shared their views on the main challenges facing UK businesses today.
These challenges are:
With the economic future still uncertain, many businesses are reviewing their staffing arrangements for the remainder of the year. It seems likely that the UK government’s Coronavirus Job Retention Scheme will not finish abruptly, but will instead be gradually tapered off. Nevertheless, organisations are already envisaging a world beyond furlough and looking at how they can manage their staffing costs during a period of likely reduced demand. Options being considered include moving staff onto a four-day week and making redundancies.
Some sectors are very focused on holding onto their staff, however. A finance leader working in professional services said that his firm’s priority was to protect jobs and it had not made use of the furlough scheme. Nevertheless, it has reduced its reliance on contractors while bonuses and promotion discussions have been deferred. There is also likely to be an impact on the firm’s partner profit-share scheme.
2. Health and safety
While remote working has generally been a success, many employees are enthusiastic about the prospect of returning to the office. Meanwhile, businesses are planning for how they can safely reopen their workplaces. Social-distancing rules create challenges, especially where office workplaces are open plan or designed around hot desking. To begin with, it’s likely that businesses will combine continued remote working with office-based working.
Commuting to work using mass transport systems is an additional complication outside the control of most employers, especially for organisations that are based in areas of high population density, since it is not yet clear how employees will be able to safely travel to work. Transport companies are planning to accommodate social-distancing restrictions, but this will limit their capacity to take passengers on buses, trains, and trams. People may also be expected to wear face masks while travelling on public transport. The UK public transport network is unlikely to return to normal until January 2021 at the earliest and possibly not until next April.
In general, businesses expect their revenues to be negatively affected by the COVID-19 crisis for at least the next couple of quarters. While revenues are down, there is also a slowdown in payments. Media companies, for example, have found that customers have been holding back on making payments — even when they have healthy cash reserves.
Auditing is a concern for businesses in many sectors, since issues are likely to arise this year that wouldn’t normally occur. During the crisis, businesses may have overridden their normal processes and procedures in order to take quick action. As a result, items may have been ordered without a purchase order, or not been receipted on arrival. Finance teams will want to pay close attention to these areas, tying up any loose ends, before their auditors arrive. Certain businesses are expecting more challenging audits by virtue of the sector they operate in. Private health, for example, is anticipating that its auditors will scrutinise its inventory management and whether it is complying with the terms of its agreement with the National Health Service.
It is extremely difficult for businesses to plan in such an unpredictable environment. Nevertheless, consumer demand appears to be returning, which could help to drive economic recovery in the autumn and result in a reasonable Christmas trading period. One finance leader, who works for a company providing a range of “gift experiences”, said that people were again buying these types of gifts online, which shows confidence in the economy.
Businesses are not expecting a return to more normal working or trading conditions until September at the earliest, panel members generally agreed. They would, however, like the government to provide more guidance — ideally a timeline that outlines, sector by sector, how a return to more usual operations is likely to happen. They also require practical support on how they can make their workplaces safe, especially for older employees and employees with underlying health conditions who are at higher risk of suffering complications from COVID-19.
The SME community has demonstrated considerable resilience in the face of the COVID-19 pandemic. Sadly, however, some businesses will not survive the financial stress it has brought. As a result, panel members felt that there is likely to be a significant uptick in insolvencies as the year unfolds.
For now, the worst of the COVID-19 health crisis appears to have passed. Yet the UK is still a long way from returning to normal life. Large swathes of the economy are still in hibernation, and businesses face some challenging weeks and months ahead.
For more news and reporting on the coronavirus and how management accountants can handle challenges related to the pandemic, visit FM’s coronavirus resources page.
— Andrew Harding, FCMA, CGMA, is chief executive–Management Accounting, and Paul Turner is regional vice-president–UK & Ireland, both at the Association of International Certified Professional Accountants. To comment on this article or to suggest an idea for another article, contact Oliver Rowe, an FM magazine senior editor, at Oliver.Rowe@aicpa-cima.com.