How firms can cope with recession

These are undeniably tough times for the small and medium-sized enterprises (SMEs).

With the latest official economic data expected to show later on Friday that the UK is now in recession, many of the country's more than four million SMEs continue to have a fight on their hands to stay in business.

Often called "the lifeblood of the economy", the importance of the SME sector should never be underestimated.

While SMEs do not generally make the business headlines, they employ 13.5 million people - 59% of the UK's total private sector workforce - according to the most recent figures from the Department for Business, Enterprise and Regulatory Reform.

For this reason, their future success is vital.

While nothing can compensate for insufficient turnover and profit, there is now a wealth of support and advice available for small firms.

Here is a guide to some of that assistance.

General advice
Delaying tax payments
How to handle redundancies
Securing a bank loan
Winning contracts
Securing payment from other firms

GENERAL ADVICE

• The best first port of call for free advice is Business Link, the government's support agency for SMEs in England.

• Broadly similar assistance is available for Scottish firms from Business Gateway, for Welsh companies from Flexible Support for Business, and for Northern Irish businesses from Invest Northern Ireland.

• Each offers free and impartial advice on all aspects of running a small business, including what government grants are available, marketing ideas, how best to pay your taxes, and how to cut your energy bills.

• They all also offer detailed advice on how to best to handle making redundancies, and the procedures to follow.

• The website of the Department for Business, Enterprise & Regulatory Reform also has much useful information for small firms.

• Local authorities and regional development agencies (RDAs) such as the South West RDA also offer free advice and other services to small companies in their areas.

• Firms should also consider becoming members of private business organisations, such as the Federation of Small Businesses, British Chambers of Commerce, and CBI. Each has a vast array of useful services available to members. Such business groups are also an excellent way of meeting fellow local businesses, offering the chance to share experiences and advice.

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DELAYING TAX PAYMENTS

• Under a change first announced in last year's pre-Budget report, small firms suffering a temporary financial squeeze can now apply to HM Revenue & Customs (HMRC) to delay their tax payments.

• Under the Business Payment Support Service programme, firms can apply to delay any payments due to HMRC, be they VAT, national insurance or staff income tax.

• With a dedicated telephone support line - 0845 302 1435 - HMRC says most callers will get a decision within 10 minutes. While a small majority may have to wait up to three or four working days.

• Since its launch on 24 November, more than 25,000 small firms have now been able to reschedule a combined £428m of payments by an average of three months.

• There are no penalty fees or surcharges, but an interest payment will have to be paid for each month of delay. The interest payments vary, but a typical level is 4.5%.

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HOW TO HANDLE REDUNDANCIES

• The Business Link website offers a step-by-step guide to making redundancies, including the required periods of notice, and redundancy payments.

• It also offers a guide on how to avoid having to lay off staff.

• Similar advice is offered by the Federation of Small Businesses and other business organisations.

• However, in almost all cases, small firms should always seek the guidance of a qualified employment lawyer to avoid any legal pitfalls.

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SECURING A BANK LOAN

• Given the credit squeeze, UK banks continue to be unwilling to lend to small firms. As most of our High Street lenders are still preoccupied with sorting out their own financial mess, lending to small companies seems to have all but dried up.

• However, things may be starting to get better, as the government has announced three parallel business loan schemes to try to restore the banks' lending to firms - Enterprise Finance Guarantee Scheme, Working Capital Scheme, and Capital for Enterprise Fund.

• The programme that most directly applies to small companies is the Enterprise Finance Guarantee Scheme, which will support up to £1.3bn of new lending by banks.

• Open to businesses with a turnover of up to £25m, it is designed to enable firms to secure loans of between £1,000 and £1m, repayable over 10 years.

• The government guarantees 75% of the loan, with the banks covering the remaining 25%.

• Most businesses in almost all sectors are eligible for the scheme, but those in the agriculture, coal and steel industries are not.

• The guarantees will be available through Barclays, Clydesdale/Yorkshire Bank, HBOS, HSBC, Lloyds, RBS/NatWest and Northern Bank.

• Despite the availability of £1.3bn of new lending, it won't be a free for all. Firms will still have to make their case on merit to their bank, explaining why they need the funds, and showing how they will be able to pay it back.

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WINNING CONTRACTS

• During a time of recession, many small firms can gain much needed work through winning a contract to supply a public sector organisation, be it a local authority or government agency.

• Almost all councils and other such bodies can advise firms on how to apply for contracts, and what work is available. Cardiff Council, for example, says it spends around £200m each year "on everything from paper clips to construction products, and from food to IT solutions".

• The supermarkets can still be a rich source of contracts for small firms. Especially as the sector appears more recession-proof than most - both Sainsbury's and Waitrose reported record sales for the Christmas period. All of the main supermarkets have special programmes to encourage more small suppliers, such as "Meet the Waitrose Buyer", and Sainsbury's "Supply Something New".

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SECURING PAYMENT FROM OTHER FIRMS

• Late payment has always been a main bugbear for small firms that supply larger companies with goods or services.

• To try to improve matters, back in December the government launched a new initiative called the Prompt Payment Code. Devised in association with the Institute of Credit Management, signature firms pledge to pay their small suppliers on time, while also offering clear guidance on payment and complaint procedures. Early signatures include John Lewis, British Gas and Asda.

source; bbc