Navigating Uncertain Waters: Why Caution is Key for Your Business Investments and Trading Partners

In today's dynamic economic landscape, it's more crucial than ever for businesses to exercise prudence when it comes to investments and the selection of trading partners. Recent data paints a picture of growing economic headwinds, highlighting the need for vigilance and robust financial planning.

The Office for National Statistics (ONS) has revealed some concerning trends. Alarmingly, approximately one in six (16%) of trading businesses currently hold no cash reserves. This is the largest proportion recorded since this question was first introduced in 2020, signalling a worrying lack of financial buffer for many enterprises.

Furthermore, supply chain anxieties are on the rise. More than a third (37%) of businesses with 10 or more employees reported concerns about their supply chains over the next 12 months, a 5 percentage point increase from late March. This indicates a heightened risk of disruptions that could impact operations and profitability.

The uptick in bankruptcies also serves as a stark reminder of the challenges businesses are facing. In May 2025, the number of bankruptcies was up 5% on the same period last year, with 10,014 individuals entering insolvency in England and Wales. This rising trend underscores the fragility of some businesses in the current climate.

Adding to these concerns, inflation continues to exert pressure. The Consumer Prices Index (CPI) rose by 3.6% in the 12 months to June 2025, up from 3.4% in May. This June figure marks the highest recorded since January 2024, indicating persistent inflationary pressures that can erode purchasing power and increase operational costs. On a monthly basis, CPI rose by 0.3% in June 2025, compared with a rise of 0.1% in June 2024, further illustrating this upward trend.

Finally, the broader economic picture is also showing signs of strain, with the unemployment rate in the United Kingdom reaching 4.7% in May 2025, an increase from the previous month.

What Does This Mean for Your Business?

These statistics collectively underscore the importance of a cautious approach:

• Rethink Cash Reserves: If your business is among those with limited or no cash reserves, now is the time to prioritise building a financial buffer. Unexpected disruptions, whether from supply chain issues or economic downturns, can severely impact businesses without adequate liquidity.

• Scrutinise Trading Partners: With concerns about supply chains and rising bankruptcies, thoroughly vet your trading partners. Assess their financial stability, their own supply chain resilience, and their ability to weather economic storms. Diversifying your supplier base could also be a wise strategy.

• Invest with Prudence: In an environment of higher inflation and economic uncertainty, any investment decisions should be made with extreme care. Conduct thorough due diligence, assess risk meticulously, and consider professional advice before committing capital. Avoid speculative or high-risk ventures that could jeopardise your business's stability.

• Monitor Inflation and Costs: Keep a close eye on inflation trends and their impact on your operational costs. Review pricing strategies, explore cost-saving measures, and ensure your business model can absorb rising expenses.

As your trusted accountants, we are here to help you navigate these challenging times. Proactive financial planning, rigorous risk assessment, and informed decision-making are paramount. Don't hesitate to reach out to us to discuss your specific circumstances and how we can support your business in building resilience and achieving sustainable growth.