FINANCE
By Andrew Tate, Partner and Head of Restructuring and Transformation, Kreston Reeves
SUPPLY CHAIN AND CASHFLOW – WHAT SHOULD BUSINESSES DO? The physical impact of stressed supply chains is hitting many businesses hard and is likely to do so well into 2022. A cashflow crisis is likely to follow for some businesses in the next 6-12 months as margins are squeezed leaving them with shortfalls in working capital. Businesses must forecast, plan, and speak to lenders now to shape their future if they see any financial challenges ahead. Businesses in our Shaping your future survey already recognise the impact challenges in supply chains will have on profitability but, for some, I believe the real picture has yet to be truly felt. Businesses with complex and challenged supply chains are not likely to see the impact on cashflows until mid or late 2022.
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Margins are being squeezed with increased transportation and consumable costs that often cannot be passed on to customers or consumers. The costs of pallets so often taken
for granted have increased by over 400%. Lower margins translate into lower profits and a greater need for working capital when businesses need to meet fixed costs – wages, supplier costs and overheads. This comes at a time when many businesses are facing a constrained working capital environment following the COVID pandemic. Government grants and loans have helped shield many businesses from this, but the loans will need to be repaid over time, compounding a challenging financial picture. Businesses need to look ahead the best they can, using forecasting tools to tools to plan scenarios. This will help them identify financial pinch-points and any potential future funding requirements. Businesses should open
