Average UK SME does not have enough cash to cover debts due in 2021, says UHY

The average UK SME does not have enough cash to cover debts due in the next year, according to new research from accountancy firm UHY Hacker Young.

The firm’s analysis of the balance sheets of more than 13,500 SMEs in the UK showed that the average SME now has only 95% of the cash (or other easily realisable assets) to pay those debts due in the next 12 months.

It said the ability to pay short-term debts out of cash or other short-term assets is seen as a “key indicator” of business health, especially in periods of financial stress such as the current coronavirus crisis.

With the pandemic forcing many small businesses to temporarily close their doors or reduce sales, UHY said the cash flow crunch for the UK’s SMEs is “only likely to get worse in the coming months”.

UHY added that UK SMEs’ cash-to-debt ratio has already been declining for several years in a row, culminating in average cash reserves falling from 104% to 95% of short-term debts in the past year alone. 

The firm said that the figures highlight the “importance” of the £330bn package of lending support for small businesses announced by chancellor Rishi Sunak in mid-March.

Martin Jones, partner at UHY’s London office, said: “It’s worrying to see British SMEs are struggling to pay their short-term debts already – Coronavirus disruption is going to make the situation even worse over the coming weeks and months.

“A lot of SMEs have seen their incomes drop precipitously almost overnight. Cost-cutting isn’t going to fix the problem – many will need emergency support from the Government as well as swifter payments from their debtors to make it through this crisis.”

He added: “It’s crucial that Coronavirus Business Interruptions Loans are made available to businesses as fast as possible, with the minimum of bureaucracy and red tape. Banks often want to process SME loans through a lengthy underwriting process, but this situation is unprecedented.

“A huge volume of lending needs to get to UK small businesses in days, not weeks or months.”