A new government was elected in the UK in July leading to a change from Conservative to Labour. New governments are always keen to bring in new policies and changes and this will always affect small- and medium-sized businesses (SMBs). At this early stage, it is unclear how exactly they will be affected. Paul Lodder, Product Domain Expert at Dext, outlines how SMBs can prepare for potential changes.
With a new government in place, SMBs will be eagerly awaiting any upcoming changes that could impact their business. For many, it can be a daunting time as new initiatives and economic updates could all call for a swift response to ensure the health of their business – but their ability to react relies heavily on the health of their financial data.
The general election and the switch in the UK government have shone a light on this ongoing challenge. The increasing likelihood of an autumn statement from the new Chancellor will be another key moment where, if it goes ahead, businesses will be relying on their accountants and bookkeepers (A&Bs) for timely advice.
There is also the very real possibility that the government could introduce new policies on taxes and regulatory updates alongside anticipated shifts in interest rates. This could affect business costs and impact consumer spending, creating both a compliance and a cash flow headache.
Pivotal then to preparing for any policy change lies in accurate financial planning. Access to the latest, up-to-date financial data is crucial for A&Bs to do precise projections, allowing stakeholders to make informed choices and confidently navigate regulatory shifts.
The cash flow dilemma
The number one concern for SMBs is cash flow and it remains the biggest challenge during times of legislative change. The scale of the problem is huge but, all too often, businesses are operating in the dark with poor or incomplete data.
The number of company insolvencies in the UK rose 14% in Q4 2023 compared to the previous year and was the highest quarter since Q4 2008. Cashflow is a major factor and has become a growing concern in a post-COVID, post-Brexit climate.
Late payments are at the forefront of the issue and the previous government stated that paying small businesses on time could boost the economy by £2.5 billion annually. Promisingly, Labour promised to clamp down on late payments in its manifesto with packages designed to help entrepreneurs and SMB owners. This could include the enforcement of stricter penalties for companies that delay payments or introducing government programmes offering loans, grants or tax breaks, which can ease cash flow challenges. It’s imperative that we see these policies come to fruition but that could take time and these won’t be a quick fix.
A new wave of compliance?
Whilst the new Chancellor is yet to confirm a budget or any changes to tax policy, the Labour government has pledged to implement policies that prioritise workers’ rights, improve job security and create a more resilient economy. The new government is focused on improving working conditions, supporting local businesses and promoting sustainable practices, which will all directly impact SMBs.
These policy changes could mean new compliance requirements and business owners will therefore need to embed these into their processes. For example, new laws such as the elimination of zero hours contracts could implicate employment contracts. Additionally, the introduction of new wage laws will force businesses to review their payroll systems.
A data foundation that powers decision-making
All this change will ultimately impact business planning and A&Bs play a crucial role in helping business owners to navigate these challenges. They must provide up-to-date records that consider any tax and employment changes and ensure leaders are educated with compliance requirements and financial implications. With the potential for new legislation and economic shifts, they must also anticipate changes in operational costs and adjust budgets accordingly.
Ultimately, SMBs need to make smart decisions and also timely ones but having poor data leads to making poor decisions. Having accounting records that are not up-to-date can also result in delayed insights and, therefore, decisions being made at the wrong time.
Data such as expenses, receipts, invoices and other financial transactions need to be accurate and complete. Outdated systems and manual processes are a hindrance, so reacting to any legislative change starts with having the right technology foundation. However, for firms that still rely on manual processes and outdated systems, that remains out of reach.
Bookkeeping automation enables healthy data and should be the gold standard for businesses. It ensures there is accurate data from the outset, which then feeds the rest of the business and means bookkeepers and business owners can react quickly during times of change.
Legislation changes can also create a spike in workload, which requires greater capacity. This is where technology and automation also play a critical role. Leveraging automation tools for routine tasks like data entry of receipts, invoices and other paperwork systems, allows bookkeepers and business owners to spend more time on forecasting and planning. Accounting software can then be leveraged to provide real-time access to financial data, facilitating better decision-making.
Technology can also help businesses with compliance tracking. Automating payroll and tax compliance reporting, for example, reduces errors, saves time and reduces the stress of staying on top of multiple policy changes at once.
The potential for legislative changes creates fresh impetus for SMBs to modernise their approaches. Bookkeeping for too long has been behind the curve when it comes to innovation and many processes have become outdated. Real-time data collection equates to real-time reporting, and this powers real-time decision-making – and that should be the ultimate goal.
Given the central role bookkeeping will play in navigating the upcoming changes, now is the time to modernise accounting practices and the data foundations on which they are built and ensure they are fit for the future.