Avoid second lockdown cashflow crisis

Does a second lockdown mean cashflow crisis for your business? What can you do to avoid it?

We know that a lot more businesses are allowed to stay open this time than were able to in March, but staying open is not necessarily a good outcome. A lot of SMEs have used up what little cash reserves they had and are facing a tough winter.

Recent surveys have shown that 33% of SMEs think they will be impacted worse by this second lockdown and 20% are predicted to not make it through.

So what can you do to help your business avoid a second lockdown cashflow crisis?

Unfortunately I don’t have any miracle cure but the things that I have seen working to help businesses are:

  • Make sure you have an up to date cashflow forecast and try to make a list of the assumptions that you’ve made in it – how much, how often, what credit, is it realistic?
  • Look out for opportunities to cut costs; insurance may be getting more expensive at the moment but energy costs and interest rates have fallen. There are also grants available for investing in energy efficiency measures which may pay off in the future.
  • There are new extensions to both the bounce back and CBILS loans which may support your cashflow even if you have already used the facilities on offer.
  • You can “top up” an existing Bounce Back loan to reflect your new circumstances or use the government backing to add invoice financing or maybe an overdraft facility to an existing CBILS loan.
  • In addition to this the repayments can now be spread over 10 years which reduces the cashflow effects significantly. You can find my earlier advice on applying for CBILS support in this post.

The most important thing to do is to make sure you have accurate, up to date information to base decisions on: knowledge really is power here.  And check out my checklist for adapting your cashflow forecast for lockdown II to make sure you have a picture of the future that you can rely on.

SOS – help managing cashflows in distress?

The saying “Cash is King” is very true: profit doesn’t pay the bills. But that doesn’t help when there just isn’t enough cash to go round and you need help with managing cashflow and getting out of trouble.

This is the final instalment in a series of posts that I started during the summer looking at the impact of the Covid disruption on cashflow and suggesting ideas for action to improve it.

Background
Recently it has become clear that the government does not feel able to support every business that is struggling with the impact of Covid. This has been greeted with dismay by a large number of businesses who would be financially viable were it not for the restrictions that are currently in place.

With the prospect of social distancing and local lockdowns continuing for the foreseeable future what can be done to ease the pressure? Solutions to cashflow problems are always individual to a business; dependent on what assets they have and the owners’ attitudes to the risk that they may be undertaking. So I want to talk more here about ways to approach your own issue in order to make a meaningful plan.

How long has this been going on?
If you stand back and think about the last few years (life before Coronavirus) was everything rosy then? In most cases lockdown in March was a bolt from the blue that upset a profitable, stable business. But in some cases the business was lurching from one emergency to another trying to keep ll of the creditors happy with limited funds.

In both cases there are big challenges ahead, but how you approach them depends on whether things getting back to “normal” will help cashflow.

Furthermore, what do you think needs to happen in order to improve your situation? This is largely going to be outside of your control, but working through a range of scenarios could help you to understand how changes in the future will impact your business.

Back to drawing board
My focus is always on the cashflow forecast. At times like this there is no other way to manage your business.

With the information you have can you work out a basic level of spending every month? A “burn rate” will help you understand how much cash you need to be taking each month in order to sustain your current spending. This is different from breaking even from a profit perspective; for a start it will include any loan and finance payments. But more importantly you need to think about setting aside money for VAT every time you get a customer payment to avoid shocks at the end of the quarter.

With this information on hand how long can you keep up the current spending rate for? What can you do to slow down the burn?

Challenge your assumptions
Sometimes the forecast doesn’t look as bad as reality – usually this highlights that customers are taking longer to pay than the terms that were offered to them. This is quite common in the current circumstances. It may be that time spent calling customers and chasing debts could pay dividends here, even if you need to agree to payment plans.

Rent arrears & payment holidays
The Coronavirus Act provided protection for businesses who were not able to pay their rents and this has been extended now until December 31st 2020. However the best course of action would be to discuss this with the landlord; the law purely limits the potential for eviction – if you want to remain in the the lease the rent will need to be paid at some point.

Also, many lenders have offered payment holidays on loan repayments. But once again, this simply delays the spending rather than taking it away, so the impact needs to be carefully considered before any action is taken.

With nearly two months left to apply for a Coronavirus (CBILS) or Bounce Back loan there is a chance to access additional cashflow if you have not already made use of the facilities. There is now a wider variety of lenders offering CBILS loans, and some may take a more innovative approach than the high street banks did during April and May, so it could be worth looking again at this if you were unsuccessful earlier in the year.

There may also be opportunities to re-finance larger assets or even renegotiate existing loans in order to slow the repayments and support cashflow.

The bottom line
Hopefully there are options to be looked into to try to hold on to cash within your business, but realistically these may not all be possible or palatable given the current state of the economy.

The biggest worry that I come across when discussing cashflow issues with struggling businesses is that often the business owner has given a personal guarantee against a business loan or there are other assets which would be forfeited if payments were not maintained.

If you are worried about your circumstance it is worth taking advice now. I am talking to clients all the time about help with managing cashflows. Every case is individual, but since March the government has brought in temporary changes to the insolvency law to allow Companies to continue in business while recovering from the financial impact of the pandemic. A number of these measures have now been extended further until December or even March 2021.

However there is nothing to be lost from consulting with an expert; an Insolvency Practitioner or experienced accountant, to ensure that you are making the right decisions. Insolvency Practitioners are often seen as being scary, harbinger of doom but in my experience they are always professional but also approachable, practical and experts in helping businesses in distress. Better to spend a little time discussing the situation with a qualified adviser than to spend weeks agonising over your fears.

At the end of the day, if you are worried ask for advice, get organised and be realistic. 

For more information, take a look here at how I can help businesses understand what’s going on in the finances and plan for healthier cashflow.

Why bother with a cashflow forecast?

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With CBILS, Bounce Back Loans, VAT deferrals, grants etc there may be more cash in the bank now than ever before and your cashflow is sorted for the next couple months.

But what happens after that?

Lockdown has probably helped the bank balance with customers paying while you’ve been running down stocks or furloughing staff. However the problems will come when customers start buying again: you’ll need to buy new stock or pay wages for sales that take a while to be paid for.

Right at the point where your bank balance has run right down you’ll need to invest more in your business.

In addition to this you need to keep an eye on payments due in the future.
Corporation Tax: usually paid October or January
Self Assessment tax: due January
Deferred VAT: due March 2021
Loan repayments: starting May/ June 2021
Plus regular VAT due every quarter regardless of other cash spend

A lot of this cash is heading to HMRC so perhaps a phone call will stem the flow? But that only drains cash from next year’s profits and stifles growth potential.

A plan for the future is vital, which means some sort of cashflow forecast. Even if it’s just a rough estimate, that plan allows you to see what pressure you’ll be under and give you time to take action.

And if you’re going to take action, the sooner the better.

Sometimes getting started is the hardest step to take. If you need some inspiration why not download this cashflow checklist, or if you would like further help then get in touch.

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Covid-19 support navigator

At the time of writing the lockdown has been in force for 6 weeks, and in that time there have been a myriad of support packages (and revisions) announced by the government in an attempt to keep businesses in business. It has been a constant struggle to try to stay up to date.

But no longer: the government has added a “support finder” tool to the Covid-19 resources on the gov.uk website. Take a look at www.gov.uk/business-coronavirus-support-finder

The finder works as a series of questions with ‘yes/no’ and tick-box answers. It doesn’t require any identifying details (name, tax UTR, PAYE reference, etc) so you can investigate the support without creating a history. The questions, and the information you will need to know to answer them are:

1. UK nation in which your business is based
2. Number of employees (more or less than 249)
3. Annual turnover (<£85,000, £85,000 to £45 million, £45 million to £500m) 4. Are you an employer with a PAYE scheme?
5. Are you self-employed?
6. Rateable value of your premises (<£51,000, >£51,000 or N/A)
7. Business sector (retail hospitality & leisure, nurseries, other)
8. Eligibility for Small Business Rate Relief or Rural Rate Relief (on 11 March 2020)
9. Are you due to make an Income Tax Self-Assessment Payment-on-Account on 31 July 2020 (unlike the previous questions, this relates to a personal liability not related to your business)

Your responses to the above questions generates a tailored list of support packages for which your business may be eligible.

For each suggested package, there is a brief description of the measure and eligibility, with a link to take you to the relevant page of GOV.UK for further detail.

Start your search here or take a look at our resources and notes about the various options here

Cashflow in a time of Coronavirus

As a follow up on my CBILS advice I want to share the cashflow checklist that I produced for my clients (and for myself!)

A cashflow forecast is the best way to see how much help you need at the moment (and you will be asked for one if you intend to apply for help under CBILS) – surviving 2020 is going to be all about your ability to pay essential bills rather than your profitability.

So I’ve attached the checklist here. Key things that I’d highlight are:

1. Extend your timeline well into your business’ recovery – it’s often restocking/ re-growth that leads to cashflow problems
2. CBILS loans are the last resort: make sure you’ve looked at every option available in order to minimise the borrowing that you’ll need
3. Think about how you’re going to repay any loan (including VAT/ tax deferrals). Repayments will use up vital cashflow when your business starts to recover
4. Stop and think about what the forecast is telling you. Is planning a return to the old normal the right thing for your business? If sales are down to a minimum at the moment then what sales do you want to regain? This is a good time to take stock and re-focus.

It’s always difficult knowing where to start with this, but the checklist has a structure that you can follow and the sooner you get started the sooner you’ll finish. If you get into difficulties give me a call, I’d be happy to help!

Help with accessing support for small businesses

In the news recently there have been horror stories about how difficult it’s proving for small businesses to access the government’s CBILS business support scheme. Here we look at how to get the best result in any funding application, and particularly the Covid-19 support.

We are currently supporting a number of businesses with their loan applications so here are our tips on what to include in your application:

1. What support do you need?

The CBILS scheme is actually just government backing for standard bank overdrafts and loan so think carefully about ways to reduce your business spending in order to reduce the potential loan you will need. There is a raft of new measures to consider: furloughing staff, deferring VAT and requesting payment holidays, amongst others.

2. Make your case

The days of bank managers who keep in regular contact with your business are long gone so be prepared to give the bank an introduction to your business; include your last set of accounts, your most recent management accounts and a summary of your recent successes and future plans. Think of this as a sales pitch; make the bank manager want to back you.

3. Outline the effects of the disruption on your business

The bank will want to see the effect on both your profitability and your cashflow, over the next 3-6 months. A cashflow forecast is essential for this – now, more than ever, cash is king. As well as the numbers make sure you explain what changes you expect in words. Every business will feel the effects differently so you can’t expect the bank manager to know this already.

4. What will your business look like after this is over?

Do you expect some of your customers to disappear? Can you capitalise on the changes you’ve been forced to make? Are new markets suddenly open to you? Most importantly you need to extend that cashflow forecast to (ideally) show the bank that you expect your recovery to allow you to repay the loan that you’re applying for.

Finally, remember to state clearly how much money you want to borrow based on the forecasts above.


We have a detailed advice sheet on giving that application your best shot: Government support.
You can find other information and help concerning the government’s support for businesses at this time on our Covid-19 support page