Accountants are increasingly concerned about the financial position of some SME clients, rising to the highest level on record
According to ACCA and the Institute of Management Accountants (IMA) quarterly Global Economic Conditions Survey, the level of concern about operating costs has jumped again for the second quarter by nine percentage points reaching its highest level on record at 62%.
Respondents to the survey, which featured 1,016 accountants and included 150 CFOs, revealed that the two biggest economic risks listed by accountants were supply chain disruption which 51% of respondents cited, and worries about renewed Covid-19 restrictions cited by 50%. Compared with the Q4 survey, there was also an increase in rising interest rates as a risk, up to 40% from 26%.
ACCA stated that as the survey was conducted just before and during the war in Ukraine, the results understandably point to economic turbulence in the coming months.
However, the survey’s s two ‘fear’ indices, which are measured by the level of concern that the business or supplier may go bust, has remained stable since the last survey falling by two points to 22 and one point to 15 respectively.
ACCA states that both indices have fallen back from the extreme levels of 48 and 22 seen in 2020 but are still above pre-pandemic levels.
Despite this, the Q1 global confidence survey increased by four points to plus nine, and overall, the consensus is that there will be modest growth through the middle of the year.
Michael Taylor, chief economist, ACCA said: ‘Given the fast-moving and unpredictable nature of the war in Ukraine, it’s important to note that the survey may not fully capture the likely effects of the invasion.
‘But the main economic effect of the Russia-Ukraine conflict has been to push oil, gas, wheat, and other commodity prices much higher. This will propel inflation to even greater heights, squeezing real incomes and slowing economic growth. Compared with previous forecasts, global growth may be reduced by as much as one percentage point this year, to around 3.25%.’
The concern of accountants is mirrored in a recent report from business advisory firm Quantuma which revealed that the number of corporate insolvencies looks set to hit the highest in a decade by 2024 due to the fallout of the war in Ukraine and cost of living pressures.
According to the firm’s insolvency modelling tool, corporate insolvencies increased 11% to just over 14,000 in 2021 from 12,500 in 2020.
Using this model, Quantum predicts, taking into account the current financial pressures, that 2022’s insolvency figures will reach the 2019 level which was 17,00 with a 20% increase over 2021, and will exceed pre-pandemic levels by 2023 and reach around 19,000 by 2024.
In its report, the firm revealed that in January 2022 around 6,384 SMEs had an insolvency risk 4.25% higher than the national average of 1% with Quantuma stating that this was due to Coronavirus Business Interruption Loan Scheme (CBILS) and the Bounce Back Loan Scheme (BBLS) repayment obligations bearing heavily on SME capital.