What Challenges Does 2012 Hold for SMEs?
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EXPERTS from Grant Thornton, which specialises in providing robust and entrepreneurial advice, take a look at a couple of key financial issues facing Yorkshire businesses in the year ahead. Is the prospect of a fundamental change to UK accounting standards (UK GAAP) on your agenda? With final versions of the standards expected in the next few months, it’s something that all businesses should be planning for now according to Andy Wood, head of audit for Grant Thornton in Yorkshire. The current proposals will require all entities – except those small enough to use the FRSSE – to report in accordance with either EU-adopted International Financial Reporting Standards (IFRS) or what is now being termed ‘The Financial Reporting Standard’ (the FRS), which is based on the IFRS for Small and Medium Sized Entities. With final standards expected by mid-2012, this should already be on the FDs’ agenda as the changes will have an impact not just on accounting processes, but wider business decisions too. For example, changes to accounting could result in the tax bill going up, even if a company’s underlying cash flow hasn’t changed. The effect on bonus payments or longer term earnout agreements could see a company’s cash soaked up if it has to pay more cash to employees, or result in de-motivated employees if it doesn’t. And with banks always looking for an opportunity to renegotiate finance, any impact on a company’s asset figures could also be damaging. With changes such as these, businesses need to be on the front foot – so they have as much time as possible to respond to the potential effects on their business. Businesses should refer to the recently released exposure draft, put a plan in place for when final standards are announced, and make sure they have engaged the right external advisers or appointed the right people internally. Whether investing for growth or to maintain existing operations, 2012 is an ideal time to cash in on asset-based lending. Ian Marwood, head of Grant Thornton’s corporate finance team in Yorkshire, explains why, With the eurozone in a state of flux and the economic outlook far from certain, 2012 looks to continue to be a challenging year for businesses of all sizes. What is clear is that most businesses accept that they will need to raise funding of some form in the coming 12 to 18 months, even if it is to strengthen capital bases and invest in existing operations. And while the difficulties in raising finance from new sources may mean that many business are choosing to ‘stick with the devil they know’, there is evidence to suggest companies are becoming more proactive and are, instead, investigating alternative sources of capital. There are also signs that new entrants into the funding market may begin to introduce the element of competition that will force the established banks’ hands. Working in the corporate finance arena, Grant Thornton has seen a move towards asset-based lending (ABL) solutions, which highlight a shift strategy among businesses that are finding traditional cash-flow based facilities challenging to raise. ABL typically includes the funding of the receivables ledger along with stock, property and plant and machinery and has replaced the term-loan and overdraft offering. This change in direction reflects the overall trend in the industry, with the clearing banks encouraging customers to move to invoice discounting and other asset-based funding solutions, given the lower associated capital holding constraints under Basel III. Our advice to businesses which are considering raising finance to grow their business is that there has rarely been a more opportune moment to leverage your balance sheet via some form of ABL facility. More articles in
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