What the UK Budget means for mid-market liquidity and why working capital is the real key

Mid-market organisations will have been watching the Budget closely to see how inflation, growth and business investment were addressed – but one of the most effective tools for improving resilience lies within the company itself.

Whilst the support package to cap bill increases, lower business rates multipliers and the doubling of Enterprise Investment Scheme and Venture Capital Trust investment limits may provide short-term relief for organisations, there were many other announcements which will do quite the opposite: tax rises on dividends and savings, the income tax threshold freeze, and minimum wage increases to name just three.

That’s why it’s imperative that finance leaders are focused on working capital, ensuring that cash tied up in day-to-day operations is managed effectively and skilfully. Because it’s only by doing so that they can retain resilience and increase stability in the long-term, despite an environmental backdrop of high borrowing costs, supply chain uncertainty and continued financial pressures.

Not only this, but improving cash flow can enable the business to grow, even in uncertain times, by transforming financial health across all functions from procurement through to payment.

The mid-market perspective

The mid-market plays a vital role in the UK economy, contributing a third of private sector GDP, according to the  Economic Engine reports from Oxford Economics and BDO.

Yet these businesses face unique structural challenges, often operating with lean finance and procurement teams, and decentralised decision-making which allows for fast action when adaptability is required – but can make financial visibility harder to achieve.

The lack of joined-up systems, standardised processes and cohesive spend and supplier data results in reactive cash flow forecasting, and inefficiencies relating to working capital that can be difficult to see or address.

That’s why, when advising these firms, a crucial starting point is taking tangible steps to improve visibility across the entire spend process. The resulting working capital freed up once these challenges have been addressed gives finance leaders more control over how and when cash is deployed, ultimately leading to the desired uplift in resilience and stability.

A strategic enabler

Working capital is not just an accounting measure, and it’s important that both internal teams and external advisors recognise how it can be used as a strategic lever to enable agility and growth. And it’s not just a case of allocating one leader to focus on this, instead businesses should be encouraged to ensure finance, procurement and operations staff all take responsibility for its management – supported by connected systems and the right technology in place to provide timely data.

It’s something that too few companies are currently getting right, in fact a PwC Global Working Capital Study revealed there was a global ‘excess working capital’ pool tied up in receivables, inventory and payables of around £1.37 trillion.

Yet we know from organisations who have improved their working capital efficiency how sizeable the impact can be. Multiple pieces of research, including an MDPI study, have shown a correlation with higher profitability. A stronger approach to working capital management can release cash which can be reinvested in growth, innovation, or technology, as well as improving forecasting accuracy and supporting better planning – vital at a time when external economic factors and the fluctuations in support from the Government are having such a seismic effect on many mid-market businesses.

How do businesses achieve better working capital management?

Ensuring all systems within the organisation are fully connected is one of the key steps in moving towards more efficient working capital management, highlighting the importance of strategic partnerships between Enterprise Resource Planning and spend management specialists.

This cross-functional ownership is especially crucial given this is cited as one of the key reasons why between 55% and 75% of ERP projects fail to deliver expected business benefits, according to Gartner, while poor process alignment is another significant factor in this high failure rate.

The integration of ERP platforms with the wider business ecosystem enables automation of procurement, purchasing and invoicing, improving data accuracy and the real-time insight leaders have into their commitments and cash flow. With this increased oversight, leaders can make more informed decisions about deploying working capital and strengthening financial resilience.

Another area where collaboration must be introduced and carefully maintained is between finance and procurement teams. For most mid-market organisations, responsibility for working capital sits with finance experts – but it’s heavily shaped by decisions within procurement and operations. Once organisations begin sharing data, objectives and accountability across all relevant teams, they can begin to act more decisively thanks to the clearer view of their cash position.

By ensuring everyone who makes or approves spending decisions understands the wider implications of those choices, organisations can move towards negotiating supplier terms which align with cash flow priorities, pressure points can be anticipated before they arise, and confident business planning becomes much more achievable.

Building internal resilience

The wider picture – taking into account economic fluctuations in the UK and across the world, Budget announcements and Government spending priorities – will always remain an important factor in spend management planning and overall business strategies. But these are all factors which are largely outside of the organisation’s control, which is why building internal resilience remains of optimal importance.

By identifying opportunities to release cash, streamline operations, and make more confident financial decisions, mid-market organisations can take ownership of their future – optimising their performance in what remains a complex and competitive environment.

Through improved visibility, connecting systems and aligning finance and procurement teams, these businesses can unlock and utilise existing cash more effectively, using it to enhance stability; create strength, agility and confidence; and fund growth and innovation opportunities without reliance on external sources.

It’s not just a financial measure, working capital is a strategic resource, and its effective management can strengthen a business’ financial position, regardless of the economic climate.