More than a third of manufacturers fear their business could be in jeopardy due to mounting pressures including debt, rising costs and multiple impediments to business as usual.
Supply chain disruptions and staff shortages can prove a “tipping point” for businesses under stress, according to research from Make UK, trade body and accounting firm RSM. Customers and suppliers stick to cash or change their payment terms.
Nearly 40% of those surveyed said they have engaged in restructuring and bankruptcy professionals or plan to within the next 12 months, if necessary or as a precautionary measure. Rising cost inflation has added pressure on cash flows as companies grapple with skills shortages and rising costs of transportation and raw materials, a factor that more than half of businesses consider is the most pressing risk to their liquidity this year.
A 20% increase in input costs is expected to have a “catastrophic” impact on nearly half of businesses surveyed. Given that the latest producer price index shows input costs for producers increased by 13% in October, compared with 11.9% in September, that increase is “very reasonable”, especially given that when combined with increases in taxes, raw materials, transport and energy costs, Make UK said.
The IHS Markit/CIPS Composite Purchasing Managers’ Index for November, released last week, showed that costs for private-sector businesses rose at their fastest pace since January 1998.
James B Rouham, senior economist at Make UK, said: “The industry is facing a perfect storm with a series of rapidly escalating costs combined with significant debt levels that many companies have taken on. used as a precaution just to survive. With the inflation spiral showing signs of continuing to escalate, many companies fear a tipping point could make their business model unviable. ”
No longer able to ease once the worst of the pandemic has passed, corporate debt levels are on the rise, with nearly half of companies reporting larger debt levels than they were at the beginning of last year. Even so, 60% of CFOs surveyed said they plan to take on more debt, with a third saying it is necessary to run a normal business.
Make UK, which represents around 20,000 companies in the engineering, manufacturing, technology and broader industrial sectors, has urged the government to consider payment holidays for state-backed loans support that companies have taken during the pandemic.
The manufacturing sector received £6.43 billion under government loan schemes, representing 9% of all coronavirus loans issued. According to an analysis of Make UK data from the Corporate Bank of England.
A government spokesman said: “We are committed to supporting businesses as they thrive and recover from the pandemic – Our Recovery Loan Program is for those looking to secure extra financing. and maintain a generous 80% government guarantee to ensure lenders continue to have confidence to lend.”
