As the new tax year approaches, more of the impact of the Autumn Budget is about to be felt.
With many businesses feeling left out in the cold by the Chancellor’s announcements, there are concerns that many might not make it through the year.
With more businesses turning to options like working capital loans, it is time consider what commercial finance might look like in the year ahead.
What are working capital loans?
While not an official type of loan that a business would directly ask for, a working capital loan is a loan taken purely for the purpose of increasing working capital and sustaining cash flow.
As might be apparent, a working capital loan is a sign of concern for businesses that find themselves in need of utilising them, as it is hoped that working capital can be generated through more sustainable means.
Work capital loans are not necessarily a death knell for businesses, as many can be used to create some breathing room in order to turn fortunes around.
However, there is undeniably a concerning trend among business owners and professionals that the current economic climate is becoming inhospitable for many businesses.
This has led to a rise in so-called ‘zombie companies’ that are now potentially facing a mini-apocalypse.
What are zombie companies?
A zombie company is a fairly uncharitable term used to describe businesses that can only just cover their costs and stay in business.
At a glance, the economic impact of the zombie company might be easily dismissed, as its contributions to the economy are limited.
For the people employed by zombie companies, the potential closure is likely to be devastating.
The job market is not in a strong position at the moment, as job vacancies are down by 9.6 per cent despite unemployment currently sitting at 5.1 per cent.
This indicates that businesses are unable to afford to hire people and those who are looking for jobs are finding it increasingly difficult to stand out.
If zombie companies do begin to collapse, unemployment rates will inevitably rise, exacerbating the problem.
What is causing businesses to struggle?
As mentioned, the Autumn Budget did not spark much hope for businesses that are already struggling to keep pace with operational costs.
In fact, the increase to the National Living Wage (NLW) and the National Minimum Wage (NMW) is likely to put more businesses in difficult positions.
With a full-time worker expected to earn an annual salary of £26,436.80 from April 2026, these changes may drive up wages across the board to maintain current tiers of pay.
For businesses that have taken to relying on working capital loans, the long-term impact of rising wages will inevitably lead to downsizing of teams.
Whether offloading staff is sufficient to keep the business afloat will depend on whether the business can continue to function with the loss of talent.
The Employment Rights Act, which is set to begin having a notable impact from April 2026, may also put increased pressure on businesses.
The 2027 changes to zero-hour contracts are expected to raise serious payroll concerns for businesses that had stayed operational by leveraging talent on a casual basis.
How can businesses endure the current challenges?
Seeking professional support is the best option for any business owner concerned about their prospects this year.
There is still time before the new tax year begins to make plans and preparations for the upcoming changes.
Understanding your financial position paves the way for effective budgeting that will reveal whether your business is likely to struggle in the coming months.
If you identify any shortfalls early, it is possible to explore different financial options.
This may include working capital loans if your financial forecasts show that a short-term cash injection will be useful, but could include more broad measures to bolster your financial resilience.
There may be other loans or grants that you have previously overlooked or been unaware of, as well as the potential for adjusting any ongoing business plans to better suit the current climate.
We are on hand to help you get a better sense of how to manage your finances.
We work alongside businesses to help them budget and explore the options available to them.
If it is apparent that your business is going to struggle or if you have lost your passion for it, we can also discuss succession options with you.
Just as continuing to run a business requires careful planning and forethought, so too does succession if you want to preserve the value of the business you worked so hard to build.
Whatever the future of your business may be, our team can help you determine the right course of action for you.
