As disruption in the Middle East continues to ripple through global markets, SMEs across Asia Pacific are grappling with a growing list of challenges. Rising energy prices, higher freight costs, supply chain disruption and weakening consumer demand are creating fresh uncertainty for businesses already navigating a volatile economic environment.
For many small business owners, the question is no longer whether the crisis will affect them, but how they should respond. Increasingly, they are turning to their trusted accountants and advisers for answers.
‘Even a small rise in costs can have a big impact on SME profitability’
That shift is creating a new role for small and medium practices. While compliance and reporting remain important, firms are increasingly helping clients manage risk, improve resilience and make strategic decisions in uncertain conditions.
Costs under pressure
The most immediate impact has been on operating costs. Kwo Kahmen, associate director for financial advisory at Forvis Mazars in Malaysia, says the disruption has created a severe energy shock for the region. Around 80% of the crude oil and oil products passing through the Strait of Hormuz is destined for Asian markets, making South-East Asia particularly vulnerable to prolonged disruption.
The effects extend beyond fuel prices. Higher freight charges, increased insurance premiums and rising input costs are affecting businesses across the manufacturing, logistics, agriculture and consumer goods sectors.
‘Many SMEs are seeking reassurance as much as technical advice’
According to Remy Neou FCCA, managing partner of Neou Audit and Advisory in Cambodia, many SMEs are already feeling the consequences. ‘The increase in oil prices affects transportation costs, logistics costs and production costs,’ he says. ‘Many SMEs have thin margins, so even a small increase in costs can have a significant impact on profitability.’
For businesses dependent on imported materials or international shipping routes, the pressure can quickly spread throughout the organisation.
New questions from clients
According to Kwo, client concerns tend to follow a predictable pattern, ‘moving from immediate cash preservation to more complex restructuring and valuation issues’.
Initially, business owners want to understand whether contracts remain profitable and whether rising costs can be passed on to customers. Attention then shifts to financing, debt servicing and banking relationships. Finally, clients begin asking more strategic questions about valuations, acquisitions, restructuring or succession planning.
‘The crisis has brought forward decisions that might otherwise have been deferred,’ Kwo says.
Jenny See FCCA, audit partner at KLP Singapore, says many SMEs are seeking reassurance as much as technical advice. Clients want help understanding the potential financial impact of different scenarios and what actions they should take now to protect their businesses. Rather than focusing on historic financial information, advisers are increasingly helping businesses plan for an uncertain future.
‘Protecting liquidity currently matters more than pursuing growth’
The return of King Cash
Across the region, one message is becoming consistent: protect liquidity. ‘In this environment, protecting liquidity matters more than pursuing growth,’ Kwo says.
That means helping clients identify which contracts and product lines remain profitable with higher input costs and which have become loss-making.
‘We advise clients to first assess how their business is being impacted under different uncertainty scenarios, particularly in terms of cashflow, cost pressures and customer behaviour,’ See says.
She encourages businesses to review existing contracts carefully, including supplier and customer agreements, to identify any clauses that could expose them to unfavourable terms, such as fixed pricing, penalties or limited flexibility in the event of disruption.
‘Businesses need a much clearer understanding of working capital’
Alton Neo, managing director of Astria Consulting in Singapore, says businesses need a much clearer understanding of working capital than many have historically had.
Many SMEs have focused heavily on revenue growth during the past decade, but current conditions are exposing weaknesses in cashflow management and financial planning. Businesses that understand their cash position and financing requirements are generally responding more effectively to the disruption.
As a result, SMPs are increasingly providing cashflow forecasting, liquidity modelling and working-capital reviews as part of their advisory services.
Stress-testing the future
Scenario planning has become another essential tool. Kwo advises clients to test financial models against multiple outcomes, including rapid resolution, prolonged disruption and further escalation. ‘The goal is not to predict the outcome but to identify pressure points in capital structure early,’ she says.
Terence Ang, partner at RSM Singapore, says this type of analysis allows businesses to make better decisions before problems emerge. By modelling different scenarios, businesses can assess the impact on profitability, cashflow and financing requirements, enabling management to act before risks become critical.
Many firms are also encouraging clients to engage earlier with banks, suppliers and customers. Rather than waiting for covenant breaches or supply disruptions, businesses are being advised to start proactive discussions supported by realistic forecasts and scenario analysis.
Building resilience
While much of the advice focuses on immediate risks, many SMPs are also helping clients rethink longer-term business models.
Neo recommends businesses move from being reactive to proactive, warning that too many SMEs still manage finances retrospectively. ‘The businesses that will perform better in the long term are those that monitor leading indicators, forecast regularly and make decisions earlier,’ he says.
‘Diversification is becoming important for long-term risk management’
One lesson emerging from the crisis is that supply chain efficiency alone is no longer enough. ‘The traditional model of cost-optimised global supply chains is giving way to a resilience-first approach that places independent value on proximity and redundancy,’ Kwo says.
This means businesses are increasingly exploring supplier diversification, alternative logistics routes and larger inventory buffers. Neou says many Cambodian businesses are now evaluating whether they are overly dependent on a single market, supplier or transportation route. Diversification is becoming an important part of long-term risk management.
Opportunities amid disruption
The crisis is also creating opportunities. Kwo points to energy diversification as one example. ASEAN has reaffirmed its ambition to source 45% of installed power capacity from renewables by 2030, creating incentives for businesses to reduce their exposure to fossil fuel price volatility.
The crisis is creating demand for new advisory services
At the same time, businesses are investing more heavily in forecasting tools, digital finance systems and risk management processes. For SMPs, this creates demand for new advisory services around scenario planning, performance management, financing strategy and business resilience.
The result is a continuing evolution of the profession. As external shocks become more frequent, clients increasingly expect their accountants to provide insight rather than simply information. The firms best placed to support SMEs will be those that can combine technical expertise with commercial understanding and strategic advice.
