In Focus Commercial Credit


Turning a corner: SMEs and the coronavirus crisis


Businesses are starting to look to the future, but what characteristics will they need to succeed?


Harry Hughes Senior insight manager, the Lending Standards Board


With freedom day in the UK and the summer holidays upon us, it is possible to think that the worst of the coronavirus pandemic is behind us. Although we all hope this is the case, for many SMEs, now is just the beginning of coming to grips with its effects. Pre-pandemic, SMEs were the lifeblood


of the UK economy, making up 99.9% of the 5.4million businesses nationwide at the start of 2020. But many are continuing to struggle as the financial impact of the pandemic becomes clear. GDP was 10% lower in 2020 than the


year before, the largest annual fall in around 300 years. Lower demand for goods and services, along with disruptions to production and supply chains, provoked a sharp and persistent decline in revenues for


many businesses. Cashflows have come under pressure in turn, increasing liquidity needs. Between April and December 2020, the


average UK SME suffered a 30 percentage point slump in turnover growth relative to the period before the crisis. The significant dispersion across firms means many endured an even bigger drop. For thousands of businesses, the financial


impact will take months, if not years, to put right. For some, it may not be possible to return to a healthy financial state and others may not be able to without external expert help. Because of this challenging financial


Because of this challenging financial outlook, it is particularly important that banks and financial services firms understand how to best support their business customers. Part of this support will be to signpost to third parties when it is appropriate to do so, including turnaround professionals


14


outlook, it is particularly important that banks and financial services firms understand how to best support their business customers. Part of this support will be to signpost to third parties when it is appropriate to do so, including turnaround professionals. With this in mind, the Institute for Turnaround (IFT) and the Lending Standards Board (LSB) recently partnered on a report looking at the important role that turnaround plays in supporting firms in difficulty.


So why does turnaround matter? Put simply, turnaround is the process of restoring a business’s long-term health and viability. This may involve freeing the firm from the effects of inefficiencies that are hampering its ability to thrive or rescuing it from distress and the prospect of insolvency.


www.CCRMagazine.com In other words, the business in question


has come to a ‘fork in the road’ moment. A turnaround professional can offer the insight and advice needed to help business owners identify why the business is struggling and what can be done to rectify it. The IFT sets out three defining hallmarks of a firm in need of turnaround expertise: l Stressed not fatal – any firm that lies on a spectrum from underperformance to distress. l Decline and fall – failure to reverse the firm’s decline will lead to its overall failure as a business. l A viable future – if the firm can overcome its immediate troubles, it has a good chance of succeeding in the medium to long term. Successful turnaround means returning


the business back to profitability and a posi- tion where it can continue to grow into the future. Without the input of turnaround at the right time, it is possible that a business in difficulty will continue to struggle, potentially until it is too late to put in place any measures to halt its decline. For this reason, it is vital that banks


and lenders understand when and how to signpost to turnaround professionals so the business customer can benefit from their input. Ultimately, effective and timely signposting


to turnaround could have a huge impact on a business customer. Indeed, it could well make the difference


between that SME staying in business or failing. This is why it is important to


August 2021


Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32  |  Page 33  |  Page 34  |  Page 35  |  Page 36  |  Page 37  |  Page 38  |  Page 39  |  Page 40  |  Page 41  |  Page 42  |  Page 43  |  Page 44  |  Page 45  |  Page 46  |  Page 47  |  Page 48  |  Page 49  |  Page 50  |  Page 51  |  Page 52