The impact for SMEs of Thomas Cook’s collapse

Kirsty McGregor of The CFN shares how the ripple across the travel industry should highlight how all SMEs should identify sectors which they are reliant upon

When multinational companies fail, inevitably the headlines are numerous as the devastating consequences for its employees are recognised. However, there is another group of stakeholders who will also suffer, their trade creditors.  Whilst it is probably assumed that the largest companies don’t trade with smaller owner-managed business directly, the supply chain further down the line may well include small and medium sized enterprises, and they will inevitably feel the knock-on effect in the coming months, just as they did when large retailers failed, or even motor manufacturers announced they would be closing their UK plants.

I’m sure those businesses who are selling to the wider airline and travel industry will already be looking at the stability of their customer base and their order book but there are lessons to be learnt here for all businesses to consider their business strategy and crisis planning.

Here are five key steps all businesses should be taking to review the impact large insolvencies could potentially have on their own trade in the future:

1. Understand which sectors and which particular companies your business is ultimately reliant on and keep up to date with industry reports, company financials and predictions for their future trading expectations
2. Diversify your customer base into different sectors so you are less reliant on any particular risk
3. For those companies (either your direct customers or their customers) where you identify that cashflow or profitability may become an issue, take action to review your own trading terms with them and ensure your credit control is organised and thorough (if you have a trade indemnity or credit insurance policy, abide strictly by their agreed credit limits and consider the use of a broker in this market, such as Credit Risk Solutions, who will be able to share their knowledge and insight with you)
4. Review your own cashflow requirements, planning ahead with projections and ensure you have the correct facilities for your business’ financing needs, both working capital and growth finance (speak to usabout how we can help with that)
5. Look at your own sector’s ‘growth curve’ and consider when the ideal time would be to achieve an exit, so that you obtain the highest multiple and the most interest from any purchasers (again, speak to us about our Exit Planning tools and the business sales process)

As economic conditions, lifestyle or generational preferences and technological advances seemingly change without us noticing on a daily basis, sectors and the businesses within them have to look up to recognise what is happening, and evolve. If they don’t manage to do that in a timely way, there can be disastrous consequences, and just like Thomas Cook or Jamie’s Italian or Carillion who all struggled for years but kept hanging on, eventually many just lose their fight.  There will most likely be a domino effect for the wider travel industry now, but all business owners should use this as an opportunity to look at their own company and those other sectors which they are reliant upon, and take steps to avert future ‘big-name’ collapses affecting your own stability.

For business advice and assistance from one of the UK’s leading accountants, find your local CFN member firm on https://www.thecfn.org.uk/about-us/