2021 may well see the greatest destruction of private capital worth in the UK in its history

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I know that I have said this before. And I am aware that I will say it again. But, the thing that kills most businesses in a downturn is cash flow. Of course, eventually, profitability and cash flow must broadly coincide, but eventually is too late in a crisis, and cash flow always fails first.

Unless, that is, the supply chain does instead. I suspect most people know the proverbial story of the cars that cannot be delivered because a 10p gasket can't be sourced from China. True or not, we most certainly need to be aware of that now. For the sake of something like that vast numbers of supply chains are going to fail in the New Year. And, it's worth remembering that supply chain failure grows exponentially.

But it's still not the supply chain, as such, that kills the business. What kills it is all the money tied up in product that cannot be sold. And so, yet again, it's cash flow that brings about the demise.

Why say this now? I suspect that should be obvious. Brexit, with or without a deal, is very clearly going to cause supply chain mayhem in the UK in the New Year. And, because of the cash flow problems that will cause numerous, and even vast numbers, of UK businesses will fail. They might have struggled through covid. It's possible that they might have still done so, Brexit excepted. Bus something always breaks the back of a fragile business, And I suspect Brexit will be that for a great many.

This, of course, is unnecessary. That's partly because I have no doubt that the Brexit transition could have been extended. Partly that's also because I have no doubt the better terms could've been negotiated. But most of all, I suspect that this will be because the government could, but will not, provide the support to get through this crisis. Providing support for coronavirus was one thing: no one can blame the government for its onset, and so that support did not have blame attached to it. But, everyone can blame the government for Brexit, and so the support that it will require will have the stench of failure attached to every penny spent. As a result I predict that the necessary cash for business will not be forthcoming.

The consequence will be obvious for all to see. 2021 may well see the greatest destruction of private capital worth in the UK in its history as business after business is wiped out. Worse still, the massive amount of human capital embedded in the companies that will fail will also be lost. This totally unappreciated capital, which is what makes our economy function, is embedded in the day-to-day operation of these organisations, and when they fail it is dissipated. Call them the routines and heuristics that make the business world go round if you will, but trivialising as that description might be it is this knowledge that supports our society. And once that disappears, recovery takes a great deal longer.

Without massive government cash injection into the private sector economy it might have its worst year in living memory, and beyond, in 2021. But, a government committed to the dogma that has already delivered Brexit will believe these companies to be zombie enterprises that are best left to go to the wall. That is what their theory tells them. That is the same theory that also told them that Brexit might be a good idea. The resulting compounding of the error will create risk for millions of jobs, but will also destroy the relationship between the Conservative party and it's a natural support base, which is the UK small business community who will see Johnson and his cohort destroying all that they have worked for.

Is this now avoidable? I doubt it. The combination of dogma and a refusal to accept responsibility, coupled with the inevitable consequences of supply chain disruption on cash flow seems to me to make this scenario a foregone conclusion.

Of course, I could be wrong. It could be that the ports will flow freely in 2021. The idea that lorries will stack in their thousands, with no idea who is to pay the cost, with society suffering the burden of lost supplies, may be entirely misplaced. But I don't think anyone really believes that. In which case the crisis that I predict will happen because cash flow is always king, and always the thing that brings a business to the end of its life.

This is not going to be fun. Not for anyone, at all.


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