As we start 2026, I am reminded of the many regulatory, economic and political cycles I have seen over the years and how profoundly they can shape business performance. Each period of change brings new pressures, but experience has shown that those businesses which prepare early are consistently the ones that adapt most effectively.
One of the most significant shifts for small and medium sized enterprises will be the introduction of the revised FRS 102 financial reporting standard from 1 January 2026. Bringing most leases onto the balance sheet and introducing a new five step model for revenue recognition will change how liabilities and earnings are presented. Many businesses will appear more highly geared, show weaker net asset positions and experience greater volatility in reported profits, even where underlying performance remains strong. Early review of accounting policies, contracts and banking covenants will be essential to avoid unintended consequences.
These accounting changes are also likely to lead to increased scrutiny from lenders and funders. Businesses that engage early and clearly explain the impact of the new standards will be better placed than those reacting after covenant issues arise.
The expansion of Making Tax Digital from April 2026 will have a further major impact. Individuals with qualifying income above £50,000 will be required to maintain digital records and submit quarterly updates. Businesses with poor record keeping or fragmented systems are likely to face increased compliance risk, higher professional fees and disruption to day to day operations. Those that prepare early should benefit from improved visibility over tax liabilities and cash flow.
Compliance costs are unlikely to rise evenly. Businesses relying on manual processes and workarounds will see costs and inefficiencies increase, while those that simplify processes and invest in automation should find compliance becomes more predictable and manageable over time.
Cash flow discipline will become more important than reported profit alone. With tighter lending conditions and more frequent reporting, businesses using rolling forecasts and active working capital management will be better equipped to respond to pressure points than those relying solely on annual budgets.
Finally, the pace of change will place additional strain on finance teams and owner managers. Businesses that invest in training, clear responsibilities and realistic implementation timelines will reduce the risk of burnout and disruption.
By the end of 2026, there will be a clear distinction between businesses that planned early and those that did not. For the prepared, change will feel like adjustment. For the unprepared, it will feel like disruption.
